SNC-Lavalin Defying Gravity

How this company’s shares continue to trade at this level is a mystery to this Fool.

| More on:
The Motley Fool

Is anyone else amazed that SNC-Lavalin’s (TSX:SNC) stock has held up as well as it has?

It’s been more than a year since the company became mired in a bribery scandal that began in Libya and has expanded since, and here the stock sits in the low-$40’s.  Sure, it’s fallen a little more than 20% from the low-$50’s range that it traded in prior to all of the trouble coming to light, but in my mind, the sell-off has been nothing compared to the troubles SNC has stacked against it.

Earnings aren’t the issue

SNC reported earnings yesterday that were 19% below year ago levels, essentially matching the decline that the stock has endured.  $49 million worth of cost provisions on two projects were at the root of these weak profits.

$32 million was attributed to the McGill University Health Centre fiasco that cost the company’s CEO his job.  The remainder was derived from a cancelled mining contract after First Quantum (TSX:FM) took over Inmet’s Cobre Panama project.

Past financials however are the least of this company’s worries.  SNC faces one of the most daunting obstacles a business can possibly face – a loss of reputation.  “It takes 20 years to build a reputation and five minutes to ruin it.  If you think about that, you’ll do things differently”.  This is a famous Warren Buffet quote and clearly something that SNC officials lost sight of as they were bribing officials at home and abroad.

Future

SNC faces a long climb back to where it was.  On April 17th the World Bank announced that it suspended the company from bidding on bank sponsored contracts for 10 years.  Hydro Quebec has made a similar move.  And, currently the Quebec Securities Commission is reviewing whether SNC still deserves the privilege of bidding on public work contracts in the province.  It’s a big world with plenty of work, but SNC losing out on opportunities on its home turf constitutes more than just a slap in the face.

Foolish Bottom Line

SNC’s concession assets, namely its 16.8% share of the 407 toll road and 100% ownership of Altalink, are valued by sell-side analysts in the mid-$20 range.  This probably sets a floor for the stock.  Given the loss of reputation however that this company has endured and the fickle nature of the business it’s in, to say the rest of the company is worth $15-20/share seems bold.  After all, what’s a business with a shot reputation really worth?

Are you tired of receiving bad advice?  You’re not alone, and there’s plenty of it going around these days.  We think one of the worst pieces of advice going is the recommendation to passively invest in the Canadian market.  If you’ve been on the receiving end of this “gem” you need to click here and we’ll send you our special FREE report “Buy These 5 Companies Instead of Following a Flawed Piece of Advice” – FREE!

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler does not own any of the companies mentioned in this report at this time.  The Motley Fool does not own shares in any of the companies mentioned.     

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

funds, money, nest egg
Investing

Retirees: 3 Canadian Stocks You Can Confidently Own for the Next 20 Years

Here's why retirees need to plan beyond 20 years in retirement. Fortis Inc. (TSX:FTS), Royal Bank of Canada (TSX:RY) stock…

Read more »

Question marks in a pile
Tech Stocks

Should You Invest in Absolute Software Stock Right Now?

Absolute Software (TSX:ABST) is a tech stock that is worth your attention, as it offers exposure to exciting security markets.

Read more »

Dividend Stocks

1 Oversold Dividend Stock I’d Buy in December 2022

Here’s one of the best Canadian dividend stocks to buy in December that I find undervalued.

Read more »

Investing

FOR TUESDAY – 3 TSX Stocks to Buy Today and Hold for the Next 3 Years

Given their growth prospects, these three TSX stocks could outperform over the next three years.

Read more »

Supermarket aisle with empty green shopping cart
Stocks for Beginners

Is Dollarama Stock a Buy at All-Time Highs?

Dollarama stock (TSX:DOL) remains at all-time highs while the rest of the market drops. Does this mean it's due to…

Read more »

Online shopping
Tech Stocks

Should You Buy Shopify Stock If the Rate Hike Cycle Slows?

Is SHOP stock a buy after its 72% drop this year?

Read more »

A bull outlined against a field
Investing

2 Canadian Stocks Set to Soar in a New Bull Market

Consider Sleep Country Canada Holdings (TSX:ZZZ) stock and another mid-cap bargain, as the bear market moves on.

Read more »

Gold bars
Metals and Mining Stocks

Better Buy: Newmont or Barrick Gold Stock?

If you think better days are ahead for gold miners, consider exploring gold stocks Newmont and Barrick Gold.

Read more »