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SNC-Lavalin Group Inc. in an 18-month downtrend

Hi Lou,

I looked in the archives and could not find any articles on SNC-Lavalin. Could you give me your opinion on this company, considering all the negative publicity recently?


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Hey Susan,

Thanks for the assignment. SNC-Lavalin Group Inc. has been severely punished for the actions of some of its employees. Staff operating in the company's international operations were charged with bribing foreign officials in an effort to secure contracts. There have been terminations, including CEO Pierre Duhaime, and rebukes from major institutional shareholders. What we need to determine is if the selling has stopped and if the shares have been punished enough.

An examination of the charts will provide evidence we can use to reduce the risks or identify the opportunities associated with SNC.

The three-year chart indicates that the overall trend has been down since the highs hit in early 2011. Worth noting is the double top that formed as $60.00 provided stubborn resistance to the advance that started in 2010. As discussed on several occasions, but always worth repeating, a double top is a reversal pattern that signals the end of an advance.

Another pattern that formed in June of 2011 was a death cross when the shares were trading at $52.00. The death cross provided another indication that the best course of action with this stock was a sell. When support along $52.00 was breached in early August it provided another warning for the informed investor.

The shares did stage an advance off the October 2011 low at $38.00 but a double top that formed in early 2012 put an end to that trend. Once the questions regarding payments made in Libya hit the wires the case for SNC became more of a caper than an investment.

The six-month chart indicates that the shares have been building a base at $38.00 with a bit of support coming in at $36.00. The RSI is turning higher while the MACD is neutral at best. Also of note is the death cross that formed in late February 2012.

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SNC has missed street earnings estimates in five of the last eight quarters which will always get investors anxious. The company is scheduled to report its second-quarter results on August 3.

At this particular point there is nothing on the charts that suggests a buy. Some have suggested that the sell-off triggered by the bribery scandal has been overdone. That may be true, but you should not ignore the fact that SNC had been under pressure before the scandal hit on missed earnings expectations.

Make it a profitable day and happy capitalism!

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