A brief comment on the Jacobs Engineering Conference Call implies some positives for Graham (GHM), one of the stocks we have followed for several years already.

Note: GHM reports earnings this Friday.

By way of introduction, for those who no longer follow GHM: GHM has fallen to under $10 from over $50 in the last few months. The company has over $4 per share in cash and no debt. Enterprise value is therefore about $50 million. Backlog, the vast majority which will convert to sales over the next twelve months is about $70 million. GHM operates in the beleaguered energy sector, mainly in refineries and chemical plants, i.e. downstream projects.

Despite a low valuation for GHM, I’ve been reluctant to get into it for a trade, since it was unclear how bad business could get because of the crisis. But hidden in the Jacobs conference call (Jacobs is one of Graham’s biggest clients), was the following quote from the Chairman:

“So big companies in Saudi are looking at the project they got in hand. They are obviously going to get some of these re-bid in terms of current commodity pricing and that type of thing. But… and of course, because your prices drop some of the upstream things that slowed down, but the down stream projects refineries the chemical plants, that type of thing; all appear to be live and well right now.”

My conclusion: GHM will not see a significant slow down in its business. And so at 2X EV/EBITDA, the stock may get a good bounce if earnings are not as dismal as The Market seems to be pricing in.