Should Investors Ignore the Criminal Charges Against SNC-Lavalin Group Inc.?

Some analysts say the stock is cheap, but will investors scared off by SNC-Lavalin Group Inc’s (TSX:SNC) legal problems?

| More on:
The Motley Fool

It’s a full-fledged scandal that management at SNC-Lavalin Group Inc (TSX:SNC) would rather not discuss. Should criminal corruption charges laid by the RCMP last month keep investors away from the engineering giant, which released its latest quarterly earnings on Thursday?

The Montreal-based firm posted earnings of $1.15 billion in the fourth quarter, up from $92.6 million in the same period a year ago. However, those numbers were skewed by the $3.2 billion sale of Alberta’s AltaLink to Berkshire Hathaway last year.

Stripping out the AltaLink acquisition, SNC’s adjusted net income was flat in the quarter, even as quarterly revenues rose to $2.82 billion from $2.12 billion in Q4 2013.

“This was a year of significant change at SNC-Lavalin as we took action to focus the company and expand our engineering and construction (E&C) platform through deeper oil and gas capabilities, which, along with our power segment, are expected to continue to drive E&C net income improvements in 2015,” said Robert Card, the company’s president and CEO.

SNC acquired oil and gas services company Kentz Corporation Ltd. last June, boosting the company’s order book by nearly $5 billion. SNC said the addition of Kentz will make the firm a leading global E&C player in the oil & gas sector, with a greater presence in key growth regions, including the Middle East, North America, and Asia Pacific, and a significant presence in Australia.

But back to those pesky criminal charges. On February 19, the RCMP charged the company with fraud and corruption in connection with its operations in Libya. The company has denied the charges and has vowed to “vigorously defend itself.”

Analysts say the charges have hit SNC’s stock hard and share prices have dropped 13% in the last month. The stock is “stunningly cheap,” said Bruce Campbell, president and portfolio manager at Campbell, Lee & Ross Investment Management in a recent interview with the Financial Post. “If I didn’t own it already…I would probably nibble at this level just because the value is so compelling.”

Maxim Sytchev, managing director and head of research at Dundee Capital Markets, agrees the current share price undervalues the company. “We feel that there is a lot of value and at some point it has to be unlocked, whether it’s through better performance or somebody looking from outside the fence,” he told the Post, suggesting that SNC could be a takeover target.

If you believe the company can ride out the criminal charges and come out unscathed on the other side, the stock may be worth picking up due to its current bargain price. On the other hand, a guilty verdict could drag the stock down even further. It’s a tough call, but as the saying goes, “fortune favours the brave.” Are you brave enough to buy SNC-Lavalin?

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.

Fool contributor Doug Watt has no position in any stocks mentioned. The Motley Fool owns shares of Berkshire Hathaway.

More on Dividend Stocks

Redwood trees stretch up to the sunlight.
Dividend Stocks

2 TSX Growth Stocks Set Up for Outsized Gains in 2024

Considering the growth prospects that these two TSX stocks offer, I would keep a very close eye on them as…

Read more »

Growing plant shoots on coins
Dividend Stocks

3 Strong Dividend Stocks I’d Add to My Portfolio Right Now

Given their solid underlying businesses, stable cash flows, and high yields, these three dividend stocks are an excellent addition to…

Read more »

ETF chart stocks
Dividend Stocks

Got $500 to Invest in Stocks? Put It in This Index Fund

This ETF is one of the best options for those with a bit of cash, who don't want to worry…

Read more »

warning or alert
Dividend Stocks

Help! How Do I Get Rid of My Stock Duds?

Stock duds can prevent you from making really big returns and using that cash to fund future investments. How do…

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

Earn $200 a Month Without Lifting a Finger (Invest in Only These Dividend Stocks)

These three monthly paying dividend stocks would be ideal for income-seeking investors.

Read more »

Business success with growing, rising charts and businessman in background
Dividend Stocks

Want 5% Growth in 2024? It’s Now or Never With a GIC

Locking in a GIC now is the smartest move you can make with interest rates coming down, but consider these…

Read more »

Golden crown on a red velvet background
Dividend Stocks

3 Top Dividend Stocks to Start a Growing Passive Income Stream

Start a growing passive income stream with shares like Canadian Utilities that boast five decades of dividend growth.

Read more »

TFSA and coins
Dividend Stocks

TFSA Investors: Where to Put $7,000 in 2024

These top TSX dividend stocks now offer yields near 8%.

Read more »