Michael Baker Corp (NYSEMKT:BKR)

CAPS Rating: 5 out of 5

The Company, through its operating subsidiaries, provide engineering and energy expertise for public and private sector clients worldwide.


Player Avatar ikkyu2 (99.14) Submitted: 5/13/2007 3:04:22 PM : Underperform Start Price: $33.46 BKR Score: +6.43

This is a small-cap, non-dividend paying firm that offers engineering consulting, mostly (80% of revenues) to the U.S. Federal and State governments. Sectors it operates in include energy and transportation.It has been in business since 1940 and went public in 1971. The CEO has been with the corporation for 55 years and the transition to find a new CEO has been difficult. In the most recent (2006) annual report, the CEO makes the point that the corporate culture and the talent of the employees are the drivers of the corporation's success.Although it has more or less tracked the S+P since it went public in 1971, it has significantly outperformed in the last couple years, although revenues were pretty flat. In the last 6 weeks it has gone up 40% on M+A rumors.My feeling, looking at the annual report, is that the company has never made a massive priority of shareholder value, and that a lot of its revenues were passed through to its engineering talent and corporate officers. It has never issued a dividend. I imagine it's pretty good to work there.And in a company where the employment is cush and the "corporate culture" and "talent" are the drivers of the comapny's success, an acquisition can be very disruptive. M+A's firebomb existing corporate culture and they often cause core talent to depart the company en masse.So I'm contrarian here. I don't think the company's a good takeover target because I think the process of acquiring it would destroy much of its value. I don't think there's leadership at the helm that's thinking about the kind of aggressive growth that would make this a Hidden-Gem style pick. So I'm guessing that it'll not get acquired and thus underperform for a while, because its share price has been driven up on M+A speculation.Risks to this pick include the prospect that I'm wrong and someone snaps the company up for a premium. The goodwill, public sector relationships and talent pool at the company do represent a significant value and an energy services firm like Halliburton or Bechtel might find they can leverage these in a way that the current corporate leadership cannot.

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Member Avatar ikkyu2 (99.14) Submitted: 5/14/2007 2:34:43 PM
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In fact, it's not clear to me why this company is publically traded at all. I wonder if they don't have to be publically owned as a condition of obtaining some of their contracts. They have never issued a dividend but they have not shown any kind of tendency to behave as a 'growth' stock since 1971, either. You could have done almost as well over the years with an investment in a CD ladder.

Member Avatar ikkyu2 (99.14) Submitted: 7/9/2007 3:30:39 PM
Recs: 0

Well, I'm down 15% on this pick. I will eventually learn that "it's not clear to me" means "stay away from this stock," I guess.

Member Avatar ikkyu2 (99.14) Submitted: 8/1/2007 4:20:02 PM
Recs: 0

Well, this is interesting. On 9/28/06, CAPS (TrackMorganJos) recorded the only Wall St. pick on record for this stock: an outperform call at the price of $20.19. On 7/18/07 the news ticker revealed that Morgan Joseph has been retained to help sell the company's Energy unit. Right now the stock is at $35.

Efficient markets require perfect information!

Member Avatar acecannon (77.06) Submitted: 10/10/2008 10:45:53 PM
Recs: 0

While I disagreed with your call, I recommended your narrative because it was very well thought out. And great job spotting the "insider" info above. What's your current take?

Member Avatar ikkyu2 (99.14) Submitted: 11/16/2008 3:12:12 AM
Recs: 0

My current take on BKR is that it is small enough to be manipulated by people who are at arms length of being insiders. I don't think its management gives a hoot about growth or shareholder value. I wouldn't touch it.

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