Why Chicago Bridge & Iron Stock Plunged 49.2% in 2017


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What occurred

If I needed to sum up 2017 for Chicago Bridge & Iron Firm (NYSE: CBI) only one sentence, I might observe how ironic it's that an organization that helped construct a few of the largest buildings within the U.S. over its 125-plus years of existence crumbled a lot in only a yr's time.

Shares of the development and engineering firm plunged 49.2% in 2017 as a trifecta of dangerous information hit buyers: mounting losses, excessive leverage, and a dividend reduce. Chicago Bridge hammered the final nail within the coffin in December by deciding to promote itself to McDermott Worldwide (NYSE: MDR) for no premium.

So what

After struggling to develop its backside line amid decrease orders and writedowns on a number of tasks, Chicago Bridge made determined makes an attempt final yr to chop prices and deleverage its stability sheet. For that, the corporate not solely put up a high-margin enterprise like know-how on the market, but in addition abruptly suspended its dividend. Buyers, who have been incomes 1.7% a yield from the inventory, despatched the stock crashing 32% proper after.

A person holding his head in despair as he watches sliding inventory worth charts.

Picture supply: Getty Pictures.

There was no respite in sight. Chicago Bridge's enterprise was dwindling and losses have been piling up. It gained ordersworth solely $437 million in the course of the third quarter in contrast with $1.7 billion in Q3 2016. For the 9 months ended Sept. 30, 2017, the corporate reported a internet lack of $391 million in contrast with a revenue of $352 million within the year-ago interval.

As if dropping the dividend wasn't sufficient, buyers in Chicago Bridge acquired a ultimate shock in December when the corporate introduced a merger with McDermott Worldwide in a deal that may fetch CB&I shareholders no premium in any way.

Now what

Whereas McDermott believes the mixed firm will have the ability to generate robust money flows and pare down debt, Chicago Bridge's debt load and damaging money circulate will not make it as straightforward as McDermott makes it sound. Chicago Bridge shareholders have been burned badly, and as my fellow Idiot Wealthy Smith contends, there's little to be excited about within the mixed entity, both.

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Neha Chamaria has no place in any of the shares talked about. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure policy.