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SNC-Lavalin's stock is up by about 12 per over the past year.

Mario Beauregard/The Canadian Press Images

Investors in SNC-Lavalin Group Inc. are hoping the worst days are over after the engineering giant reported progress on its anti-corruption measures as well as plans to sell a major asset to shore up its cash.

Shares in the Montreal-based company rose 3 per cent Monday on the dual announcements, which are part of management's plan to boost profit and restore SNC-Lavalin's long-suffering reputation.

Some remain skeptical of the infrastructure company's ability to recover from an international corruption scandal and sluggish global economic growth. However, many analysts are bullish on what they see is a cheap stock with growth potential.

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"We think the stock is massively undervalued," said Maxim Sytchev, an analyst at Dundee Capital Markets. "There is light at the end of this tunnel."

SNC-Lavalin has had a number of setbacks since bringing in Robert Card, a veteran U.S. manager, as chief executive a year ago to help rebuild the company. A disappointing second-quarter loss and fallout from corruption-related financial scandals have weighed on its shares.

Still, Mr. Sytchev notes SNC-Lavalin's stock is up by about 12 per cent over the past year, compared with about 3 per cent for the broader S&P/TSX composite index.

By Mr. Sytchev's analysis, the shares are trading at 8.4 times earnings, compared with 15.5 for rivals such as Fluor Corp. and Jacobs Engineering Group Inc.

"This is the best industrial idea in North America right now," said Mr. Sytchev, who has a "buy" rating on the stock and a $52 price target.

SNC-Lavalin said Monday that it's looking to sell an equity stake in AltaLink, its wholly owned Alberta electricity transmission company, as part of its strategic plan to unload certain infrastructure assets.

In a separate release, the company said 32 people made amnesty requests under its three-month program encouraging employees to come forward about ethical violations. The amnesty program is part of an aggressive anti-corruption initiative across the company.

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"The many important initiatives we have launched in 2013 should reassure stakeholders that our commitment to ethics and compliance excellence continues to be unwavering," Mr. Card stated.

Eight analysts have a "buy" rating on the stock, while six have a "hold," according to S&P Capital IQ.

Some are waiting on SNC-Lavalin's third-quarter results, after it reported a disappointing second quarter loss of $37.3-million in early August on unexpected charges related to projects in Africa.

That caused the stock to tumble to about $40, after spending most of the summer around $45. The stock hit a 52-week high of just under $50 in February and closed Monday at $42.35.

"I think the worst is over and investors will start to focus more and more on what is going to happen in the future for SNC like they announced today [with AltaLink]," said Pierre Lacroix, an analyst with Desjardin Securities, who also has a "buy" on the stock and $50 price target.

He forecasts a gradual recovery for SNC-Lavalin in the months ahead, as the company recovers from recent scandals.

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"Obviously this is an emotional story with what we've had in the last year or two," said Mr. Lacroix. "The company has the capacity to rebuild itself and rebrand itself and compete in the future. You have to think long term with SNC."

Even with the recent onslaught of bad news, the stock's bottom appears to be in the $35 to $40 range, said Michael Bowman, partner and portfolio with Wickham Investment Counsel Inc., which owns shares in the company.

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About the Author

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More


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