Does SNC-Lavalin Group Inc. Deserve to Be in Your Portfolio?

Here’s why SNC-Lavalin Group Inc. (TSX:SNC) is worth a closer look.

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SNC-Lavalin Group Inc. (TSX:SNC) is working its way through one of the most difficult periods of the company’s history, but a closer look at the details reveals an interesting opportunity.

Corruption concerns

Most of SNC-Lavalin’s troubles are connected to dodgy deals done by a handful of the company’s former employees.

The engineering firm is already riding out a 10-year ban imposed by the World Bank for misbehaving on a bridge deal in Bangladesh, and recent charges by the RCMP relating to deals in Libya threaten a similar penalty here in Canada.

Add to this a global slowdown in the energy and mining sectors and you are looking at some pretty dark clouds hanging over the company.

Positive developments

Most investors are simply giving the stock a wide berth until the skies clear, but contrarian types are looking at a flurry of recent deals and wondering if the company has already begun to turn the corner.

The RCMP charges haven’t impacted SNC-Lavalin’s ability to secure major Canadian contracts. In fact, the company has put together an impressive string of wins since the charges were announced.

SNC-Lavalin and its partner were recently chosen to build and maintain Montreal’s new Champlain Bridge. That is a multi-billion dollar deal that could span decades.

The company is also part of a group that has been handed the responsibility of managing and operating a key unit of Atomic Energy of Canada Limited.

The provincial governments are also giving SNC-Lavalin big deals. The company has been chosen to build a massive transit extension in Toronto as well as a wind-terminal switchyard project in British Columbia.

There is no guarantee that SNC-Lavalin will emerge from the RCMP issue unscathed, but some pundits are thinking the end result might not be the worst-case possibility.

Earnings and dividends

SNC-Lavalin reported decent Q3 2015 earnings an announced a record revenue backlog of $12.7 billion.

The company pays a quarterly dividend of $0.25 per share that yields about 2.4%. SNC-Lavalin isn’t known as a dividend-growth stock, but the company has increased the distribution every year for more than a decade.

Should you buy?

When you compare the sum of the parts to the market value of the company the stock starts to look pretty cheap. SNC-Lavalin is planning to sell its stake in Highway 407, which some analysts believe could fetch as much as $3 billion. That would translate into about $20 per share, or just under half of the current stock price.

The company finished Q3 with total cash and short-term investments of $2.45 billion. Long-term liabilities are about $1.5 billion, so there is more than $6 per share in cash and cash equivalents.

That means you are only paying about $16 per share for the massive revenue backlog plus the company’s other assets. One estimate puts the value of that part of the business as high as $29 per share.

This is a contrarian pick, but SNC-Lavalin is a global leader in its field and investors with a long-term outlook might want to consider the stock while it is still cheap.

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 Andrew Walker has no position in any stocks mentioned.

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