Tuesday, March 29, 2011

I Bought Shaw As A Nuke Growth Company, I'm Keeping It As A Nuke Retrofit Company

Prior to the Japanese earthquake, I was very content to own Shaw Group, the big Louisiana based construction company. I built a position several years ago in the mid $20s and its price had moved up nicely to around $42 on the back of the nation's anticipated, renewed commitment to nuclear energy. Shaw, a minority owner of Westinghouse [ the owner of the latest and best nuclear reactors], and the major nuclear construction company had a half dozen plants under construction in China and the USA and another batch approved by oners and regulators. The future was looking good.

Then Japan's problems occurred and Shaw's stock price dropped to the $30 range. Fortunately for me,PWER, the renewalable energy inverter company, moved up nicely over the same timeframe reducing my pain. At its present pricing, $35, I think Shaw is a reasonable purchase. We will likely proceed will all approved plants, but with adjustments. Those adjustments will mean change orders and work to Shaw's advantage. Nuclear power supplies about 30% of our energy and it can't be replaced over night or over a decade. We have to have it, but we will try to make it safer and that benefits the contractor. Many functioning plants will be retrofited and Shaw will be selected as contractor. Not only have they built more plants than the competition, but as a 20% owner of Westinghouse, they are connected to the world's most advanced reactors, and also own specialized piping facilities. I believe Japan's issues will create a wave of business for Shaw.

Shaw has some screwy accounting and reporting due to its minority ownership on Westinghouse and some currency issues that accompany that ownership, but the company does a good job of discussing the issues. That said, Shaw is selling for about 12 X forward earnings and has a decent balance sheet. While not a screaming buy, or a "fat pitch", $35 is a good entry point for this quality engineer/contractor that also happens to do disaster remediation and major construction jobs, like all the dike rebuilding after Katrina.

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