SNC-LAVALIN GROUP INC. $39 - Toronto symbol SNC

SNC-LAVALIN GROUP INC. $39 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 150.9 million; Market cap: $5.9 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.2%; TSINetwork Rating: Average; www.snclavalin.com) fell over 20% on February 28, 2012 after it announced that its 2011 earnings will be $80 million, or 18% below its earlier forecast. In 2010, SNC earned $437.0 million, or $2.87 a share.

The earnings drop is partly due to $35 million in unusual payments related to certain construction contracts. Because of the recent civil war, SNC will also write down the value of its Libyan operations, including a prison, an airport and a water treatment system, by $23 million. The company did not say if the unusual payments are connected to its Libyan projects.

SNC is working with its external auditors and lawyers to examine these payments and certain other contracts.

The earnings warning has also spurred a $250-million class-action lawsuit that accuses SNC of conducting “unlawful activities in Libya.” SNC has denied the charges.

Even with this uncertainty, SNC continues to win new contracts, including a $475-million deal to refurbish four reactors at Ontario’s Darlington nuclear-power complex. Brazilian mining company Vale SA has also hired SNC to modernize its nickel smelter in Sudbury, Ontario.

SNC-Lavalin is a hold.

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