The downward trend in the share price of SNC-Lavalin Group (TSX: SNC) continues and value-conscious investors are wondering if the stock could finally be a purchase.
Let's take a look at the latest information to see if SNC-Lavalin deserves to be in your wallet right now.
A difficult road to travel
SNC-Lavalin has just reported the results of the second quarter of 2019 which confirmed the difficult times that the engineering giant is facing in its energy and mining segments. He has cut the 80% dividend and states that the environment is challenging.
The company recorded a net loss of $ 2.1 billion in the quarter, including a non-cash charge of $ 1.8 billion for goodwill impairments associated with assets 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 pounded the stock after the July 22 press release, sending it from $ 25.50 to $ 21.50 in two days.
The stock continued to move lower in the August 1 earnings report. Apparently the market has calculated that things are even worse than they thought, with the stock falling by another 10% to less than $ 19.00 per share.
To put things in perspective, last year the SNC-Lavalin traded over $ 55.
The ongoing pain is frustrating for long-term investors who thought the company was on the road to recovery after cleaning up the house following a series of corruption scandals.
The SNC-Lavalin is still facing charges in Canada for fraud and corruption related to contracts secured in Libya during Gaddafi's era.
The situation made headlines last year when the former Canadian Attorney General, Jody Wilson-Raybould, quit his job, claiming that the Office of the Prime Minister (PMO) l & Forced her to conclude an agreement with the SNC-Lavalin to prevent the process. A conviction would prevent SNC-Lavalin from bidding for Canadian contracts for up to 10 years.
It is interesting to note that the problems of the company are much deeper than its contaminated reputation. The SNC-Lavalin reduced the orientation twice in January due to the reduction of contracts in Saudi Arabia and a bad mining contract in Chile. The company blames the Saudi issue of tense relations between the country and Canada.
The extraction problems are due to a type of turnkey contract that the SNC-Lavalin states that it will no longer pursue.
Should you buy?
Despite all the negative aspects, the SNC-Lavalin could be attractive at this time for a contrarian bet. At the time of writing, the market capitalization is $ 3.3 billion, which is close to the $ 3.25 billion that the company should get for its participation in the 407 toll road in Ontario.
There is still a contractual backlog of $ 11 billion in the Engineering Service division, which remains profitable and is seen as the basis for rebuilding the company.
Management is also exploring the sale of the Resources division, which holds an additional $ 4.6 billion in turnkey mining and infrastructure projects. It's hard to say what the group would take, but it's certainly not useless.
Analysts have different opinions on the value of the company and the estimates on the sum of the parts reach $ 45 per share.
Things could get worse before the dust finally stabilizes, but the upside potential at this point could be significant and contrarian investors may want to start nibbling the stock.
Fool collaborator Andrew Walker has no position in the actions mentioned.
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