Why Are Jim Chanos and Jim Simons Betting on This Infrastructure Giant?
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In July, Chicago Bridge and Iron Company N.V. (NYSE: CBI) announced plans to acquire Shaw Group Inc. (UNKNOWN: SHAW.DL) at $46 per share. Chicago saw an over 15% drop in its shares on the Shaw acquisition news. On the other hand, shares of Shaw were up over 50%. The acquisition price for Shaw is $46, while the company is currently trading at less than $44 a share.
At the end of 2Q, both companies had serious billionaire fund managers as shareholders—including the likes of D.E. Shaw, Steven Cohen, Jim Chanos and Jim Simons. We believe these managers were bullish on what these companies could do separately, but are aggressively bullish on what they can accomplish together. The Shaw acquisition will give Chicago more of a presence in the energy sector, while favorable petrochemical prospects will continue to drive its core business.
Shaw has plans to ramp up its nuclear projects in 2013. The company has seen margins contract on cost overruns on nuclear and coal projects. As well, the company is finalizing the sale of its energy and chemicals unit, while also completing the sale of its 20% stake in Westinghouse—back to Toshiba—which will eliminate all of its $1.7 billion debt.
Prior to the acquisition offer, Shaw was down year to date 15%, having had a couple huge earnings misses. The August 2011 earnings miss came in at 176%, posting actual EPS of negative $0.44 versus estimates of $0.58. Then in May 2012, the company missed EPS again, posting negative $0.09 EPS versus estimates of $0.58.
Chicago is expected to see a revenue increase of 23% in 2012 and continued strengthening into 2013. Chicago also boasts a backlog of $28 billion—which is expected to put next year's EPS up 18%. Some of the biggest competitors for the potential Shaw-Chicago conglomerate will be KBR, Inc. (NYSE: KBR), Jacobs Engineering Group Inc (NYSE: JEC) and Fluor Corporation (NYSE: FLR).
KBR reported 2Q net income of $104 million or $0.70 per share compared to net income of $100 million or $0.65 per share in the second quarter of 2011. Earnings next year are expected to come in 18% higher. KBR has announced a couple key contracts with the likes of DuPont and Dominion Resources, and is up 7% year to date. The company also upped its earnings guidance for the year 2012, calling for EPS of $2.60 to $2.80, previous estimates were $2.45 to $2.80.
Jacobs, seeing strength in its upstream oil and gas, and chemicals sectors, expects EPS to come in at an estimated 13% higher next year. Backlogs have risen 11% to $15.6 billion from a year ago. Fluor is the powerhouse of the industry, with a market cap of around $9 billion. Fluor is expected to see a 20% increase in 2012 revenues, with its oil and gas segment as the driving force. The company is also expected to see a positive increase in revenue mix, with a solid backlog in the chemical segment.
Fluor saw Carlson Capital increase its position by 62% in 2Q, while Jacobs and KBR saw common interest from notable firms Royce & Associates and Platinum Asset Management. Platinum was the top fund owner by shares in Jacobs, while also upping its stake in KBR by 23% over the quarter. The second largest owner of Jacobs by shares was Royce & Associates, which also owned 1.7 million shares of KBR. Worth noting for KBR is the recent insider sale by the company’s CEO.
The top five fund owners were all upping their stakes in Shaw during 2Q, most notably D.E. Shaw and Steven Cohen, by 41% and 318% respectively. For Chicago, Jim Chanos and Jim Simons were modest owners, while Columbus Circle Investors was the top fund owner, with 3.1 million shares invested. Click here to see all funds owning Shaw and all funds owning Chicago. Each of these engineering and construction firms have top fund managers owning a piece of the action, but we believe that a Chicago-Shaw combo could be the most impressive powerhouse of the bunch.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Fluor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.