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Is SNC-Lavalin Group (TSX:SNC) Stock a Buy Below $20?

The downward trend in the stock price of SNC-Lavalin Group (TSX:SNC) continues, and investors with an eye for value are wondering if the stock might finally be a buy.

Let’s take a look the the latest information to see if SNC-Lavalin deserves to be in your portfolio right now.

A tough road ahead

SNC-Lavalin just reported Q2 2019 results that confirmed the difficult times the engineering giant is facing in its energy and mining segments. It cut the dividend by 80% and says the environment is challenging.

The company reported net loss of $2.1 billion for the quarter, including a non-cash charge of $1.8 billion for write-downs on goodwill connected to businesses acquired in the Resources divisions.

In July, SNC-Lavalin shocked the market with the announcement that its results would be worse than previously expected. The market hammered the stock after the July 22 news release, sending it from $25.50 to $21.50 in a two-day rout.

The stock continued to drift lower heading into the August 1 earnings report. Apparently the market figured things are even worse than they thought, with the stock dropping another 10% to below $19.00 per share.

To put things into perspective, SNC-Lavalin traded above $55 at this time last year.

The ongoing pain is frustrating for long-term investors who thought the company was on the road to recovery after cleaning house in the wake of a series of corruption scandals.

SNC-Lavalin is still facing charges in Canada for fraud and corruption connected to contracts secured in Libya during the Gaddafi era.

The situation made headlines late last year when Canada’s former attorney general, Jody Wilson-Raybould, quit her job, claiming the Prime Minister’s Office (PMO) pressured her to cut SNC-Lavalin a deal to keep it from going to trial. A conviction would bar SNC-Lavalin from bidding on Canadian contracts for up to 10 years.

Interestingly, the problems at the company go much deeper than its tainted reputation. SNC-Lavalin reduced guidance twice in January due to reduced contracts in Saudi Arabia and a bad mining contract in Chile. The company blames the Saudi issue on strained relations between the country and Canada.

The mining woes are due to a type of lump-sum turnkey contract that SNC-Lavalin says it will no longer pursue.

Should you buy?

Despite all the negatives, SNC-Lavalin might be attractive right now for a contrarian bet. At the time of writing, the market capitalization is $3.3 billion, which is close to the $3.25 billion the company is expected to get for its stake in the 407 toll road in Ontario.

There is still a contract backlog of $11 billion in the Engineering Service division, which remains profitable and is viewed as the foundation to rebuild the company.

Management is also exploring the sale of the Resources division, which holds another $4.6 billion in lump-sum turnkey mining and infrastructure projects. It’s tough to tell what the group would fetch, but it certainly isn’t worthless.

Analysts have different views on the value of the company, and estimates on the sum of the parts go as high as $45 per share.

Things could get worse before the dust finally settles, but the upside potential at this point could be significant, and contrarian investors might want to start nibbling on the stock.

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Fool contributor Andrew Walker has no position in any stock mentioned.

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