To: Asymmetric who wrote (54055 ) 6/17/2014 4:50:35 PM From: Paul Senior Read Replies (2) | Respond to CBI. There are a lot of negative points in the article.Wall Street analysts are missing the forest for the trees, assuming CBI's reported financials represent its future and anchoring their projections to CBI guidance and reported Adj EPS, both of which are significantly inflated by non-cash income from the release of the reserve. So, like some insurance companies, they bank earnings, according to Prescience. And they apparently have this as a $1.56B loss reserve amount. Many companies try to smooth earnings, and as for me, if what CBI is doing is legal, I'm happy they have a reserve they can call upon over the next few years. As regards this: We believe CB&I will be forced into a goodwill write-down or financial restatement, either of which would trigger debt default, heightening the risk of liquidity crisis or dilutive equity raise. Are things so patently bad that somebody can say with assurance that a debt default will occur? Just how high would the risk of liquidity freeze or dilutive equity be? Seems like it depends on a lot of the future going wrong for CBI. Except for '08, CBI's been profitable in 9 of past 10 years, and has shown good roe in eight of those years. If the accounting is questionable, or the results of Shaw acquisition iffy, I'll still bet on the company showing good results in next years. (That loan loss reserve might help them.) I've upped my position again today. As for others, no question the article presents a scary picture about CBI, and the stock has room to fall in this market. Perhaps best for others to avoid the company now.
