SHAWCOR LTD. $40 - Toronto symbol SCL

SHAWCOR LTD. $40 (Toronto symbol SCL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 59.4 million; Market cap: $2.4 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.3%; TSINetwork Rating: Average; www.shawcor.com) gets 90% of its revenue by making sealants and coatings that keep oil and natural gas pipelines from rusting. The remaining 10% comes from manufacturing industrial products, such as electrical wire and protective sheaths.

In April 2013, the company purchased the 49% of Socotherm LaBarge LLC that it did not already own for $30 million, which included assuming its debt. Texas-based Socotherm coats and insulates pipelines for deepwater oil and gas projects. Its clients operate in the Gulf of Mexico and off Africa’s west coast. Recently, ShawCor agreed to sell Socotherm’s half of a joint venture in Brazil for $30 million U.S.

Thanks to the Socotherm purchase and new pipeline-coating contracts in North America and Asia, ShawCor’s revenue rose 34.7% in the three months ended September 30, 2013, to $525.8 million from $390.5 million a year earlier.

Earnings jumped 36.6%, to $73.0 million from $53.4 million. Per-share earnings soared 61.3%, to $1.21 from $0.75, on fewer shares outstanding. ShawCor gets two-thirds of its revenue from outside Canada, and the weaker Canadian dollar boosted its earnings by $4.2 million in the latest quarter.

The company ended the quarter with an order backlog of $646 million. That’s down 17.0% from $778 million three months earlier. However, Shaw- Cor is now bidding on over $900 million of new contracts. Its strong reputation should help it win many of these jobs.

ShawCor’s long-term debt of $361.0 million is just 15% of its market cap. It also holds cash and investments of $111.5 million, or $1.88 a share.

The stock trades at a low 9.9 times ShawCor’s likely 2013 earnings of $4.06 a share. The $0.50 dividend yields 1.3%.

ShawCor is a buy.

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