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Aug 10, 2017

S3 Analytics: Chicago Bridge & Iron Down 32% after 2nd Qtr Loss

Chicago Bridge & Iron Co. (CBI US) is down over 31% in afternoon trading after it reported a 2nd quarter loss of $3.02/share and quarterly revenues below $2 billion for the first time since 2012. CBI quarterly revenues had been declining for the last two quarters prior to this release but they have not posted negative numbers since the 2nd quarter of 2008.

CBI is one of the largest global energy infrastructure design and construction companies but recent contract overruns have affected its cash flow capabilities and ability to service its debt load. CBI will be selling its technology business, which will generate $2 billion, and eliminate its $0.07 dividend in an effort to strengthen its balance sheet. CBI’s future earnings flows are still at risk due to the nature of their contractual obligations, 70% of their contracts are fixed-price which puts them at risk for cost overruns instead of cost-reimbursement contracts which indemnify any over budget project expenses.

CBI is the second largest short in the worldwide Construction & Engineering Industry Sector behind Dycom Industries (DY US) and had the second largest increase in short interest over the last month behind the Dutch ports and waterway construction firm Boskalis Westminster (BOKA NA).

CBI’s stock price is down 64% in 2017 but CBI short sellers have timed the market well and are up 109.3% for the year. CBI short interest is up $111 million, or 40%, in 2017 with most of that increase occurring in the last two months.  Short sellers were most active in May when CBI’s stock price fell 39% and in late June/July when CBI’s stock price fell another 11%. They have kept their short exposure on in August as CBI’s stock price declined 27%.

Short sellers have increased their exposure slightly today, but because available borrows are getting more difficult to locate, short interest will not be able to climb much higher than $500 million due to lack of borrow availability. Stock borrow rates have increased from General Collateral in the first half of the year to 1.50% fee in July and are now trading over 6.00% fee as borrow supply is dwindling.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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