Thursday, March 17, 2005


Will Selling Off Assets Threaten Shaw's Credit Rating?

As reported in the Feb. 10, 2004, issue of the Troubled Company
Reporter, Standard & Poor's Ratings Services affirmed its 'BB'
corporate credit rating and its other ratings on The Shaw Group
Inc. At the same time, Standard & Poor's revised the outlook on
the company to negative from stable.

"The outlook revision reflects the fact that profitability and
cash flow generation for fiscal 2004 ending August will be weaker
than previously anticipated, because of continuing challenges on a
few problem projects, reduced expectations of asset divestitures,
and weakness in the higher margin pipe manufacturing operation,"
said Standard & Poor's credit analyst Heather Henyon.

As a result, it is unlikely that Shaw will be able to meet
Standard & Poor's expectations of total debt to EBITDA of 2.5-3x
and EBITDA to interest coverage in the 3x area in 2004. However, a
growing backlog of more steady environmental and infrastructure
projects may enable the company to achieve an acceptable credit
profile in the intermediate term.

Shaw Hired Chicago Scandal's Culprit

Ousted aide returns to his roots
May 2, 2004
BY FRAN SPIELMAN City Hall Reporter Chicago Sun-Times
Before his meteoric rise and equally sudden fall at Mayor Daley's City Hall, former Chicago Budget Director Bill Abolt made his home in the environment.
Who says you can never go home again?
Abolt, the only member of Daley's Cabinet to take the fall for the Hired Truck scandal, resurfaced last week as manager of the Chicago office for the Shaw Group, an international construction engineering, environmental and energy company with 6,000 employees nationwide.
Shaw works with the state and federal governments on large-scale brownfield cleanups and waterway restoration and is looking to enlarge its Chicago office after acquiring smaller environmental firms. That makes Abolt, who has an 18-year track record in and life-long love for the environment, a perfect fit.
"It's funny. I spent a lot of sleepless nights telling my wife what I wanted to do, and the day I took the job, I woke up in the middle of the night thinking about what I was gonna do on the first day and the day after that," said Abolt, 45. "It immediately felt right. I knew it in my gut."
After accepting Abolt's resignation, Daley bent over backward to praise his former fair-haired boy and promised to help him get a job in the private sector.
"Bill is a very capable, understanding individual and public servant ... and I will help him. ... He has a great future in the private sector," the mayor said at the time.
Abolt's decision to return to his environmental roots makes it fairly obvious Daley didn't lift a finger to help. Abolt doesn't see it that way.
"He was supportive because of the opportunities he gave me to do incredible things. I enjoyed every minute that I worked for him," he said.
Well, not exactly every minute.
There was a bitter end that saw Daley accuse top aides of keeping him in the dark about the Hired Truck mess, only to confine the damage to Abolt a few days later.
If Abolt believes that was unfair, he's keeping it to himself. But a voice that choked with emotion betrayed the hurt.
"Everybody makes mistakes, but I worked hard. I did my work with integrity," he said.
"I did my job extremely well and operated successfully in government for 20 years. ... I made a decision I believed was an appropriate one, and I'm completely at peace with it. We're not gonna focus on the past. I want to move on."
The $40 million-a-year Hired Truck program has turned into the biggest scandal of Daley's 15-year administration. It forced the mayor to fire his $135,516-a-year budget director, his own cousin and Angelo Torres, the former gang member turned Hired Truck czar now charged with shaking down a trucking contractor.
The political fallout followed a six-month investigation by the Chicago Sun-Times that showed how politically connected companies, some with ties to organized crime, are paid $40 to $78 an hour or more to do little or no work.
Until the trucking time bomb exploded, Abolt had been the fastest-rising star in Daley's universe. He filled a City Hall power vacuum with a string of promotions from first deputy environment commissioner, to commissioner, chief of management and budget director, even though he had no background in finance.
In his first media interview since his forced resignation, Abolt refused to directly address the scandal.
Asked who was responsible for hiring Torres, Abolt would only say, "I was there for an 18-month period. Employees of the department -- a number of people were there when I started."
Pressed on whether he really did keep Daley in the dark about lingering problems that have plagued the Hired Truck program for decades, Abolt said, "I have no regrets about my work, and I have the highest regard for the mayor. He's done incredible things for this city. That's my answer."
On the day he accepted Abolt's resignation, Daley claimed the budget office inherited responsibility for the Hired Truck program after a 1998 scandal and that the buck stopped with Abolt.
City Hall has suspended dozens of companies and declared that all 165 companies on Chicago's trucking gravy train would lose their favored status as of June 1 and regain it only after meeting rigid new standards.
Abolt insisted he was methodically trying to clean up the mess when the Sun-Times blew the whistle. But he also commended the mayor's "forthright and open" efforts to contain the damage.
"The way they're handling the issue is appropriate and aggressive. I fully support what they're doing -- completely, 100 percent. It is solid work," he said.

Can Democratic Shaw Group CEO Keep Getting Federal Contracts From Bush Administration?

My friends, THIS is why Democrats lose! The Louisiana Democratic Party has just elected a new chairman of the State Central Committee. James Bernhard is CEO of The Shaw Group, a fortune 500 company. The Baton Rouge Advocate article contains the following unbelievable passage. "'We need not to have a Republican or Democratic agenda. We need to look forward to having a Louisiana agenda for all people,' Bernhard said." Now, can anyone imagine the head of a state Republican party saying such a thing? This is the language of surrender. This is the language of a loser. Haven't we lost enough? Louisiana Democrats lost a U.S. Senate seat in the last election, for goodness' sake! We "need not" have a Democratic agenda? Really? Then we really need not have a Democratic Party, need we? Way to rally the troops there, Big Jim! The new state chairman of our party is nothing but an appeaser, and the state turns a deeper shade of crimson. I am so sick of these centrist "Democrats" that I could vomit. (

Wednesday, March 16, 2005


Shaw's SEC Problem Drew Attention - But What Has the SEC Discovered?

Under attack
July 6, 2004
By Sara Bongiorni,
Business Report staff

An SEC inquiry at Shaw draws out-of-state law firms that specialize in shareholder litigation.
There's a reason their critics sometimes describe trial attorneys as sharks. Mix a little blood in the water, and they come zooming in for the kill.

As with sharks, some litigators are more dangerous than others. The most lethal and best-known shareholder litigation firm is now doing business in Louisiana, drawn here by a federal probe into The Shaw Group's accounting practices.

The New York law firm Milberg Weiss is the "great white" of shareholder litigation. It handles upwards of 1,000 suits at a time. Its top lawyers make a reported $10 million a year.

At one point over the past 10 years, Milberg Weiss was the lead counsel in over half of all class-action settlements in such cases, according to a report by Cornerstone Research and Stanford University Law School.

Detractors have described Milberg Weiss attorneys as "economic terrorists." One of its top lawyers was dubbed the "King of Pain." The firm is credited- and disparaged- for its creation of "strike suits," in which plaintiff's attorneys sue on behalf of shareholders after a drop in a firm's stock price.

But Milberg Weiss also has admirers. The left-leaning magazine "The Nation" described a former partner at the firm as "America's Top Corporate Crime Fighter." Milberg Weiss has filed suits on behalf of shareholders against a long list of corporate defendants: Enron, Tyco, WorldCom, Martha Stewart.

Some of those cases highlight an uncomfortable fact for Milberg Weiss's critics: the firm has often been correct in its allegations of lying, cheating and stealing by corporate executives.

Yet the firm also has been stung by its own zeal on occasion. In 1999 it agreed to pay $50 million in punitive damages- on top of $45 million in compensation- after a jury decided it had abused the legal process in suing a Chicago consultant.

As in Shaw's case, the allegations in strike suits claim wrongdoing of some kind is behind a fall in shareholder value. The volatile stock of technology firms made Milberg Weiss a familiar, if detested, name in California's Silicon Valley. The targets of its suits in that region run the gamut from the well known- Intel, Apple- to the obscure.

Most strike suits never reach a jury; a majority are settled out of court well before the case reaches that point. As a result, whether or not a firm committed some sort of fraud is often a moot point in the resolution of the case, some observers say.

"The company's position is that it's too risky, that they had to settle even though they didn't do anything wrong," says Glenn Morris, vice chancellor at LSU's law school. "Of course, the plaintiffs' attorneys claim (a settlement) shows that they were right, that the companies need policing."

In Shaw's case, Milberg Weiss's class-action suit- along with actions filed by smaller firms- was filed days after the company's public revelation on June 10 that it was the subject of an SEC inquiry.

Shaw says it is cooperating with SEC investigators and is confident the inquiry will be resolved in the company's favor. Spokesman Chris Sammons declined to be interviewed for this story, saying Shaw does not comment on pending litigation. Milberg Weiss likewise did not respond to requests for an interview. And SEC spokesman John Heine says the agency doesn't disclose the names of firms being probed until it announces an action or penalty against them.

As is standard for class-action strike suits, the plaintiffs' firms file their suits first, then start vetting the defendant's public financial statements for evidence of possible wrongdoing. The firms also begin in earnest to search for aggrieved shareholders, though federal law puts limits on how aggressively they can advertise. Milberg Weiss and other firms have posted links on their Web sites inviting shareholders to join the class action.

Like the other firms suing Shaw, Milberg Weiss is recruiting shareholders who bought or held Shaw stock during the period of alleged fraud: Oct. 19, 2000, to June 10, 2004.

Other elements of the Shaw case are standard for this breed of litigation. Strike suits often follow word that federal regulators are taking a look at a firm's financial statements. Since Shaw's report of the inquiry, about a half dozen out-of-state firms have filed class-action suits against the company.

"It's not uncommon that these private actions follow an SEC action," says Edward Sherman, a professor at Tulane University's law school. "They are kind of tag-alongs to that kind of thing."

Big firms like Milberg Weiss typically do the heavy lifting, with smaller firms getting involved in the hope of a quick settlement. At some point, a judge appoints a lead plaintiff, often a pension fund or other institutional holder of stock in the defendant firm.

"The big class firms try to represent these big players," says Bruce Packard, a litigator with the Dallas firm of Davis Munck.

The fate of the class-action suits against Shaw doesn't hinge on whether the SEC inquiry evolves into a full-blown investigation. The right to file such suits is independent of the federal agency, in part because the SEC doesn't recoup money on behalf of shareholders.

In that sense, a government investigation is a "win-win" for plaintiff's firms, says Packard.

"If they find something, you get good discovery," he says. "If they don't, you can still find it on your own and be a thorn in the side of the company."

The next legal test for Milberg Weiss and other firms involved in the Shaw case is convincing a judge enough evidence exists to suggest at least an inference of wrongdoing on Shaw's part, says LSU's Morris.

The plaintiffs' firms will pore through public documents to build their case. If a federal judge is convinced that at least an inference of wrongdoing exists, the plaintiffs' attorneys will be granted the power to issue subpoenas for internal corporate documents to further their case, Morris says. Those documents are off limits for now.

Those developments are likely to take place over the next few months. Meanwhile, Shaw's attorneys will press for a judge to dismiss the case, Morris says. If the suit survives that step, the pressure on the company to settle grows dramatically.

"Generally speaking, if the suits survive that step, they settle," Morris says.

Copyright © 2004 by Louisiana Business Inc.

What Has Happened to SEC Investigation?

Shaw Group Reports Informal Sec Inquiry
BATON ROUGE, La.--(BUSINESS WIRE)--June 10, 2004--The Shaw Group Inc. (NYSE:SGR) reported today that on June 1, 2004, Shaw was notified by the Securities and Exchange Commission (SEC) that it is conducting an informal inquiry. The SEC has not advised the Company as to either the reason for the inquiry or its scope. However, the request for information appears to primarily relate to the purchase method of accounting for acquisitions, as presented in Shaw's Form 10-K for the fiscal year ended August 31, 2003.

The SEC's notice states that the notice should not be construed as an indication of any improper or unlawful conduct. The SEC has not issued a formal order, and Shaw Group has voluntarily agreed to cooperate fully with the inquiry.

Robert L. Belk, Executive Vice President and Chief Financial Officer, said, "We are confident that our accounting practices, including the application of the purchase method of accounting, are in accordance with generally accepted accounting principles. We have informed the SEC that we will cooperate fully with this informal inquiry and hope to resolve all of its questions. While this is only an informal inquiry, we feel it is important to advise our shareholders and others because of our commitment to the principles of full disclosure and openness."

Suit Against The Shaw Group

Emerson Poynter LLP Announces Investigation on Behalf of Participants and Beneficiaries of The Shaw Group Inc. 401k

HOUSTON, TX, July 30, 2004 -- On July 20th, 2004 Emerson Poynter LLP announced that it had filed a securities fraud class action lawsuit in the United States District Court for the Eastern District of Louisiana on behalf of all persons who purchased the publicly traded securities of The Shaw Group, Inc. (NYSE:SGR) ("Shaw" or the "Company") between October 19, 2000 and June 10, 2004, inclusive (the "Class Period"). Although not pled in the securities fraud class action complaint, Participants and Beneficiaries of The Shaw Group 401k Plan and The Shaw Group Inc. 401k Plan for Certain Hourly Employees may have related claims concerning investments in Company stock in the Plans.
Emerson Poynter's investigation of the retirement plans focuses on concerns that Shaw and other fiduciaries for the Plans may have breached their ERISA-mandated fiduciary duties of loyalty and prudence by (1) failing to prudently and loyally manage the Plans' assets by imprudently investing a significant amount of the Plans' assets in Shaw stock; (2) failing to monitor and provide fiduciary appointees with information that the appointing fiduciaries knew or should have known that the monitored fiduciaries must have in order to prudently manage the Plans' assets; (3) failing to provide complete and accurate information to participants and beneficiaries; and (4) breaching their duty to avoid conflicts of interest.

Emerson Poynter LLP has substantial experience representing plan participants in ERISA actions and investors in securities fraud class action lawsuits. The firm represents investors and retirement plan participants throughout the nation in such cases as Enron, Reliant Energy, Goodyear, and ADC Telecommunications from its offices in Houston, Seattle, and Little Rock.

If you are a member of one of the Plans and purchased or held Shaw stock through the Plans, you may contact two of our paralegals, Tanya Autry or Michelle Raggio, or any other member of our team (Scott Poynter or John Emerson) by calling toll-free at 800/663-9817 or via e-mail at

Shaw's CEO Highlighted in Wall Street Journal Article Because of Obscene Bonus When Company Lost Money

CEO bonuses at top 100 companies rise 46.4 percent
The Wall Street Journal

Bonuses for many chief executives surged last year amid rising criticism of what some deem excessive compensation, especially in cases where the bottom line doesn't keep pace.

At 100 major U.S. corporations, CEO bonuses rose 46.4 percent to a median of $1.14 million, the largest percentage gain and highest level in at least five years, according to an exclusive survey by Mercer Human Resource Consulting in New York. Mercer, which began tracking the latest proxy statements of 100 big companies for The Wall Street Journal in 1999, didn't scrutinize any heads of Wall Street firms, where much higher bonuses are common.

The Mercer study also revealed that the median 2004 bonus equaled 141 percent of annual salary, another record. Clerical and technical-support staff earned an average bonus of 5 percent of salary last year at concerns granting bonuses across the board, other surveys indicate.

CEOs in the Mercer study enjoyed median total direct compensation of $4,419,300 - about 160 times as much as the average U.S. production worker made last year. (Total direct compensation includes salary, bonus, the value of restricted stock at the time of grant, gains from stock-option exercises and other long-term incentive payouts.)

"This is not a good trend because the bonus traditionally has not been well-linked to performance," said Lucian Bebchuk, a Harvard law professor and co-author of the recent book, "Pay Without Performance." Corporate boards' compensation committees have wide discretion to set and change management bonus programs.

Boards defend the surge in CEO bonuses as a sign of improved profits and the diminished popularity of stock options. But activist investors and governance watchdogs contend that the enlarged awards often are unjustified.

At Shaw Group Inc., a Baton Rouge, La., construction-and-engineering business, Chief Executive J.M. Bernhard Jr. received a $238,000 bonus for a year in which the company lost $31 million. He has led Shaw since he helped found it in 1987 and remains its biggest individual shareholder.

Bernhard was one of five chiefs whose bonuses went up while their employers' net income went down last year, the Mercer analysis showed.

Legal Actions Against The Shaw Group Because of False and Misleading Statements

SHAW GROUP: Lerach Coughlin Lodges Securities Lawsuit in E.D. LA
Lerach Coughlin Stoia & Robbins LLP commenced a class action in
the United States District Court for the Eastern District of
Louisiana on behalf of purchasers of The Shaw Group, Inc. ("Shaw
Group") (NYSE:SGR) publicly traded securities during the period
between October 19, 2000 and June 10, 2004 (the "Class Period").

The complaint charges Shaw Group and certain of its officers and
directors with violations of the Securities Exchange Act of
1934. Shaw Group is a global provider of services to the power,
process and environmental and infrastructure industries.

The complaint alleges that defendants made false and misleading
statements about Shaw Group's finances, prospects and
acquisitions. As a result of defendants' false statements, Shaw
Group's stock traded at artificially inflated prices, trading as
high as $62.37 in April 2001. Defendants took advantage of this
inflation, selling $54.3 million worth of their personal Shaw
Group holdings and accomplishing two secondary offerings of Shaw
Group stock, raising more than $215 million in net proceeds.

On June 14, 2004, it was revealed that the SEC was investigating
Shaw Group's accounting for purchases, causing its stock to fall
to $10.05 on volume of 4.2 million shares. According to the
complaint, the positive statements about Shaw Group's business
during the Class Period were false or misleading when issued.
The true but concealed facts were:

(1) Shaw Group was prematurely recognizing income in
violation of Generally Accepted Accounting Principles
by releasing acquisition-related contract reserves into
earnings, boosting its profit by $200 million over
three and a half years; and

(2) Shaw Group's business was not performing as well as
represented and a significant number of its contracts
were not profitable, which it was concealing through
accounting manipulations, including improperly
accelerating revenue recognition under the percentage-
of-completion method of accounting.

For more details, contact William Lerach or Darren Robbins of
Lerach Coughlin Stoia & Robbins LLP by Phone: 800-449-4900 by E-
mail: or visit their Web site:

SHAW GROUP: Schatz & Nobel Lodges Securities Lawsuit in E.D. LA
The law firm of Schatz & Nobel, P.C. initiated a lawsuit seeking
class action status in the United States District Court for the
Eastern District of Louisiana on behalf of all persons who
purchased the publicly traded securities of The Shaw Group, Inc.
(NYSE: SGR) ("Shaw") between October 19, 2000 and June 10, 2004,
inclusive (the "Class Period"). Also included are all those who
acquired Shaw through its acquisitions of Badger Technologies,
The IT Group, Stone & Webster, or Energy Delivery Services and
all those who purchased shares in the secondary offering on
October 23, 2003.

The Complaint alleges that Shaw, a provider of complete piping
systems and comprehensive engineering procurement and
construction services, and certain of its officers and directors
issued materially false statements concerning Shaw's financial
condition. Specifically, defendants inflated Shaw's reported
revenues and earnings by improperly establishing and drawing on
reserve accounts established in connection with a series of
large acquisitions, including the acquisitions of Stone &
Webster and The IT Group. Additionally, defendants prematurely
recognized revenue in violation of Shaw's own purported policies
and Generally Accepted Accounting Principles, and failed to
disclose the extent to which Shaw was vulnerable to changes in
power generation market conditions.

On June 10, 2004, Shaw announced that the SEC was conducting an
inquiry focused on Shaw's accounting for acquisitions. On this
news, Shaw stock, which had traded as high as $62.37, fell 12.4%
to a closing price of $10.75 on June 14, 2004. During the class
period, Company insiders sold shares of Shaw for proceeds in
excess of $80 million. Additionally, during the Class Period,
Shaw sold $490 million convertible zero coupon, liquid yield
option notes.

For more details, contact Nancy A. Kulesa of Schatz & Nobel by
Phone: (800) 797-5499 by E-mail: or visit their
Web site:

Was Glassman's Optimism Warranted?

On March 16, 2005 the Shaw Group stock price closed at $21.68, rather high compared to the to its 52 week low of $8.89. Consider the following rosy view of Shaw by James K. Glassman:

February 27, 2003 8:00 a.m.
Do It Yourself
Stock research is not hard.

A friend whose judgment you trust tells you about an interesting stock. Or you read a newspaper article about an intriguing business, or run across one at work or at the mall. Or your dentist tells you that there's this company that makes a terrific new drill. What do you do?

What you don't do is run out and buy it.

Instead, you do the research. It's not hard. Thanks to the internet, investors today have almost the same tools to analyze stocks as Wall Street experts. And, without the conflicts and biases, the amateurs' choices are often better than those of the pros.

Let's look at an example to see how it's done. The company is the Shaw Group (SGR), a manufacturer based in Baton Rouge, La. Its stock was brought to my attention by one of the smartest business minds I know, the former chief executive of a New Orleans bank (whose own shares provided my own biggest score in the market).

The two of us love the chase. We're always looking for good prospects, and we trade ideas in e-mails. He's bought one or two of mine, and I've bought one or two of his. Most of my assets are held in mutual funds and ETFs (exchange-traded funds, such as Spiders, which mimic the benchmark Standard & Poor's 500-stock index). Decisions to buy individual stocks to supplement those diversified holdings I make very slowly and very rarely. The research is part of the fun.

In his 1989 book One Up on Wall Street, Peter Lynch, former manager of the Fidelity Magellan fund, argued that small investors can succeed by "ignoring the hot tips, the recommendations from brokerage houses, and the latest 'can't miss' suggestion from your favorite newsletter — in favor of your own research."

That research doesn't always involve numbers. It usually begins with listening, watching, and thinking. Lynch himself says he found some of his biggest winners just by being alert: Dunkin' Donuts from drinking the fabulous coffee, La Quinta Motor Inns because "somebody at the rival Holiday Inn told me about it." His wife pointed him to a company called Hanes, which was test-marketing pantyhose in the grocery in plastic eggs. "Carolyn didn't need to be a textile analyst to realize that L'eggs was a superior product," Lynch wrote.

One of my own best investments has been Starbucks (SBUX), whose stock has tripled in the past five years. I bought it after I saw a long line of average Americans waiting for an expensive latte at a highway rest stop. A lightbulb flashed: Starbucks was not just for yuppies! Of course, I didn't simply run out and buy it. I looked at the data, read the annual report, checked the competition. But it's the catalyst that counts, and it can come anywhere: from a conversation with a stranger, a trip to the drugstore.

I have never bought a Shaw product. That's because it makes industrial pipe. Here, the catalyst was Ian Arnof, my ex-CEO friend. When Ian talks, I listen.

Shaw passed my three initial personal screens.

First, it's small enough that there is a chance its charms have been overlooked by Wall Street. Since so many big investors buy and sell them, large-caps are rarely flaming bargains. The market for large-caps, in economic terms, is pretty "efficient." But Shaw Group has a market capitalization (that is, a value according to investors: its price times the number of shares outstanding) of only $400 million, compared, for instance, with $100 billion for Coca-Cola (KO).

Second, it appears — at least at first glance — to be super-cheap. In the most recent 12 months the company earned $2.24 a share, and on Wednesday it closed at $10.71, for a price-to-earnings (P/E) ratio of about 5, compared with 28 for the average S&P stock.

Third, it's in a boring business that's not too hard to understand. Shaw doesn't make any old pipes. Its main customers are electric utilities and other companies that generate power. In that business, pipes aren't just plumbing; they're the guts of the operation. Shaw is also the only vertically integrated firm in the business. It provides everything: design, engineering, construction and environmental services.

Gleaning this kind of information is simple. I turn to two reliable, free financial Web sites — MSN Money, a service of Microsoft and CNBC, and Yahoo Finance. They offer profiles, charts, and reams of financial history. I also check Morningstar, which focuses on mutual funds but also has data and analysis on individual stocks, and Motley Fool, a more opinionated site. And, naturally, I spend a lot of time mesmerized by the jampacked one-page description of the company provided by Value Line (800-833-0046), a service I subscribe to. Value Line began covering Shaw only in December, but it has data going back to 1993. (Netflix, it doesn't cover at all.)

I also check the company's annual report and any recent news stories: The Google search engine and the personal-finance section of America Online are good sources. What about analysis from investment firms? I read the narratives and look at the data but ignore the ratings ("overweight," "market perform," etc.). I can make my own judgments more objectively.

Every company has a story, and, after you have done the research, you should be able to tell the tale in a telegraphic sentence or two. For Shaw, I would say this: Century-old pipemaker acquires related businesses, becomes key niche player, goes international, attracts investors as a play on coming deregulation of electric utilities. Deregulation fizzles in wake of California crisis and Enron scandal, economy slackens, stock tanks.

Shaw, which went public at $14.50 a share in late 1993, rode the boom, the stock rising to $63.50 by mid-2001. Today, it's about one-sixth of that price.

Investors thought Shaw was a growth stock — and they paid accordingly. Its P/E jumped from 15 to 29, which was actually quite reasonable for a company whose earnings and cash flow (that is, the real dollars free for investment) increased at a rate of 30% between 1997 and 2002. But growth slowed, and disappointed investors dumped their shares.

All of that is understandable. The issue now is whether Mr. Market has become too pessimistic. Value Line expects that weak power markets will lead to flat sales this year and that Shaw's earnings will fall to about $2. One of the five analysts (that's all!) who cover the stock predicts just $1.75, but that's still a P/E, based on today's price, of about 7. Of course, earnings could go even lower. But Shaw could present exactly the kind of arbitrage (or profitable anomaly) I crave: It's priced for the short term while I buy for the long term.

Shaw's latest quarterly income statement, issued in mid-January, does indeed show a slight drop in earnings, but management reported at the same time that its backlog of projects totaled $5 billion, up 11% from a year earlier. That's a healthy figure for a company with sales of $3 billion a year.

Now check the balance sheet. What we need to know is whether Shaw has the resources to ride out tough times. The answer seems to be affirmative. Shaw has $528 million in debt, but only $6 million is due over the next five years. Value Line reports that at the end of August (the conclusion of the fiscal year) Shaw held $552 million in cash, so it could actually pay off all its loans and have a few bucks to spare.

The decision on whether to buy Shaw comes down to this: Can the company endure a slowdown, in the expectation that the economy will revive and the power market will grow more stable? The kicker is deregulation, which could mean a new wave of power-plant construction.

Shaw is risky, no doubt, but the price reflects that risk — and then some. Last year, according to Value Line, the company generated cash flow of $110 million. Its market cap is $400 million, so an investor pays less than $4 to buy $1 of annual cash flow. An investor in Cisco Systems (CSCO) pays about $30 for $1 of cash flow; an investor in Wal-Mart Stores (WMT), $18.

As I was about to make a decision on Shaw, I stumbled onto a group of sleuths who had come before me. Each year since 1993, about 200 first-year MBA candidates at Tulane University divide into groups of three or four and study nearby companies whose shares are listed on the major exchanges. Many of the stocks have turned out to be "tremendous opportunities," says Peter F. Ricchiuti, the professor who runs the program, which is called Burkenroad Reports, after an alumnus and benefactor. The stocks have to pass two initial screens besides proximity: first, market caps have to be under $500 million and cash flow and earnings have to be positive for the preceding 12 months.

Four years ago, the students began putting together a portfolio of the stocks they liked most. Total gain since then: 43.6%, compared with a loss of 5.5% for the Russell 2000 index, the best benchmark, since the stocks are all small-caps.

Then, in December 2001, Hancock Bank in Baton Rouge launched a mutual fund, Hancock Horizon Burkenroad (HYBUX), based on the students' picks. For 2002, its first full year, the fund ranked sixth out of 651 small-cap growth funds, losing a mere 0.8%, compared with a loss of 21% for the Russell and 22% for the S&P 500. Here we go again: amateurs beating professionals.

Shaw, as it happens, is one of the stocks that Ricchiuti's students studied and recommended, and, at last report, was among the largest holdings of Horizon Burkenroad. The students also wrote a 21-page analysis of Shaw that's available on the website. They recommended it as a "buy" and set a price target of $35. Unfortunately, the stock — as well as the market as a whole — has taken a nose dive since the report was written, back in March of last year. (By the way, a report last month by a Wall Street firm sets a target of $24 for 2004.)

The Tulane analysis provides valuable detail on the management — a key factor, but hard for investors to assess from afar. Ricchiuti says in an interview in the Feb. 1 issue of Bottom Line Personal newsletter that his students "typically meet with the founders or owners" of the companies they research: "It is vital that they be passionate and trustworthy. Individual investors tend to be welcome at small companies and can listen to conference calls held for analysts."

Ricchiuti favors companies based far from Wall Street because "the less attention the stock has had from professional investors, the greater the likelihood that we have found an undervalued gem." Among the gems — potential ones, anyway — that the Tulane students have found lately: Craftmade International (CRFT), which makes ceiling fans and lighting kits, and IberiaBank (IBKC), a consumer bank in southern Louisiana. Beware that Craftmade, especially, is a tiny company, with a market cap of only $90 million. It's doubled in the past five years, but it's been very volatile.

Both stocks are listed in Horizon Burkenroad's portfolio. So are a few others that intrigue me, including Sanderson Farms (SAFM), a well-managed chicken processor (Miss Goldy brand) in Laurel, Miss., whose shares have plunged lately and trade at a P/E of 9, and SCP Pool (POOL), of Covington, La., the world's largest wholesale distributor of swimming-pool supplies, whose stock has gone from $6 a share in 1998 to $26 last week.

Ian told me about the pool company a few years ago, and, to my chagrin, I followed up in a desultory fashion and never bought it.

That won't happen with the Shaw Group.

— James K. Glassman is a fellow at the American Enterprise Institute and host of He does not own Shaw now, but he will soon. This column originally appeared in the Washington Post.

Safety Problem for Shaw Group

Workers claim they suffered radiation poisoning during Texas cleanup

March 10, 2005, 4:43 PM EST

ROCHESTER, N.Y. -- A group of nuclear-industry workers who helped clean up a contaminated industrial site in Texas in 2002 claim in a federal lawsuit they suffered serious radiation poisoning because their Louisiana-based employer failed to provide adequate safeguards.

Eighteen people employed by subcontractors allege that Shaw Group Inc., based in Baton Rouge, La., created such unsafe working conditions at the former Gulf Nuclear site in suburban Houston that many workers ended up walking off the job.

Shaw Group failed to provide adequate protection to workers and allowed them to suffer "excessive external and internal radiation exposure," according to the lawsuit filed last week at the federal court in Rochester.

One worker, Dominic Cotroneo of Rochester, suffered health problems that may be linked to acute radiation exposure, including hair loss, attorney Linda Shaw said in Thursday's Rochester Democrat and Chronicle.

"They were put in constant danger every day," Shaw said. "Some of them have been, we believe, significantly overexposed."

The workers, six of whom reside in New York state, accuse Shaw Group of violating federal regulations and industry standards and ignoring their complaints about safety. The Shaw Group declined to comment on the lawsuit, which seeks unspecified damages.

The industrial site in the Houston suburb of Webster, where radioactive sensors used in the oil industry were once made, was filled with radioactive cesium and americium _ radiological material that federal authorities feared could potentially be used to make "dirty bombs."

The building was cleaned up and razed and the hazardous material was shipped to secure disposal sites.

Copyright © 2005, The Associated Press

The Shaw Group's Real Financial Performance

Inside word is that officials of this company that has had serious business problems are talking about the company's "cooking of the books" to make its financial situation look much better than it really is. Not surprising, considering the failure of the company to win major new contracts in its Environment & Infrastructure division, especially from the Department of Energy, where it makes its greatest profits. Personnel turmoil is rampant, with many unhappy and nervous senior people working hard to get out, including the Wash.,DC head of DOE business trying to get a position in the Department of Energy, despite having a Democratic background. Time for the Securities and Exchange Commission to discover another Enron and WorldCom-type corporate scandal in this bastion of good old southern boys playing games in Baton Rouge.

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