Did my PRELIMINARY look at Shaw Group, SGR. Have only begun to go through the 10-K, haven't cracked the annual reports yet, have reviewed S&P and First Call and run the SSG using the AAII data disk. So far it looks promising.
Here's an email I wrote to another member of our club.
SGR may be another opportunity. I'm working it up as my April presentation, but it may be worth jumping on sooner. Take a look at it.
Its basic business is piping systems for power plants, refineries, etc. It's the largest company in this field in the US. It's been growing well, partly as a result of a big merger a year or two ago.
Several things impress me. First, it's been declining slowly for no real reason I can find. No dramatic drop off, just slow decline. If you look at the 5 year chart in Yahoo, you see it dropped way down in Jan 99, to about 9.5, back up to 63, then a long slide. It may be ready for a return working up in price. It had a good first quarter 2001, beating estimates of 43 cents; reported 45 cents vs. 31 cents a year ago.
Second, it has a backlog of $4.5 billion, against FY2001 revenues of 1.5 billion. That means they have 3 years sales at present levels already on the books.
Third, they responded to the stock price decline by announcing a $100 million stock buy-back, of which as of the latest I've seen they've spent $10 million. So there's room to buy more back.
They openly admit that the industries they serve, and therefore their company, are cyclical industries. But power generation plants aren't going away, and indeed given the California situation last year, there are, I think, a lot to come down the pike. Plus they're into decommissioning nuclear plants, which will be a growing business.
Current PE is down to 13.1, and RV is 81.3%.
Basically, I like their business area, and they seem to be the industry leaders, at least in this country. Power generation plants will continue to be build, upgraded, and retrofitted.
I ran the SSG with a 15% growth (AAII says 26, First Call says 25%, S&P expects revenues to increase 50% in 2002), outlied the 2001 PEs (43.4 and 15.7) to get average PEs of 24.2 and 7.7. Inserted the .45 earnings into AAII quarterly data. Using the 2 year low of 9.5 as the low, I get a buy up to 25.9, vs a closing price of 20.68. What I really like is that the five year target is only 75, which isn't far above what they're already reached, so if they simply recover in the next two years, we're ahead of the game. Upside/downside is a healthy 4.9. And if I bump the 9.5 low up to the forecast low of 11.3, I get a buy up to 27.2 and an up/down of 5.8.
If I use the Preferred Procedure using a 10% sales growth, I get earnings growth of 6.2% and a buy up to 21.3.
The PERT-A is all positive.
This seems to me to be a classic SSG buy signal. Take a look at it and let me know what you think. |
