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Blue Harbour Raises Its Position in Babcock Wilcox

Blue Harbour and Babcock Wilcox

Blue Harbour raised its position in Babcock Wilcox (BWC) in 4Q14. The company accounts for 9.9% of the fund’s portfolio in 4Q14.

An update on the spin-off

In its 4Q14 earnings release, the company’s CEO, E. James Ferland, said that “The positive performance and significant momentum of the two core businesses at the end of the year reinforces our belief that the planned spin of the Power Generation business will result in two strong businesses with opportunities for increased growth.” He also added that “We are on track to execute the spin in mid-summer, which we are confident will increase value for our customers and shareholders.”

Nuclear segment’s 4Q revenue declined by 61%

The company reported 4Q14 revenue growth of 4.3%. Its GAAP (generally accepted accounting principles) EPS (earnings per share) was a loss of $0.97—compared to $1.48 in 4Q13. In the earnings release, it stated that “Revenues from the Nuclear Energy segment were $40.5 million, compared to $104.7 million in the prior year period, a decrease of $64.2 million primarily attributable to management’s decision to exit the low margin nuclear projects business.”

In the earnings release, Ferland noted that for the first time in its history, the Nuclear Operations segment posted record revenue in 4Q14. Also, international bookings for both coal and renewable power plants drove revenue in the Power Generation segment.

To gain portfolio exposure to Babcock Wilcox, investors can consider ETFs like the iShares Dow Jones US Industrial ETF (IYJ) and the iShares Russell 1000 Value ETF (IWD). Babcock Wilcox accounts for 0.12% of IYJ’s portfolio and 0.03% of IWD’s portfolio.

Other companies in this space include Jacobs Engineering Group (JEC) and Fluor Corporation (FLR). They had a PE (price-to-earnings) ratio of 15.61x and 13.42x for full-year 2014.

Overview of Babcock Wilcox

Babcock Wilcox is a leading technology innovator in power generation systems, a specialty constructor of nuclear components, and a premier service provider. Its operating history dates back more than 145 years.

It provides a variety of products and services to customers in power and other steam-using industries, including electric utilities and other power generators, industrial customers in various other industries, and the US government.

Babcock Wilcox operates in five business segments—Power Generation, Nuclear Operations, Technical Services, Nuclear Energy, and Power—its small modular nuclear reactor business. The US government is the primary customer of its Nuclear Operations and Technical Services segments.

In the next part of this series, we’ll discuss the hedge fund’s position change in Investors Bancorp.