Markets: Cardno nonplussed by Morgan Stanley buy

Morgan Stanley’s David Evans has initiated coverage of Cardno with a recommendation investors buy the stock.

Evans says the shares in the Brisbane-based environmental and construction consultants to the oil and gas industry can rise another 28 per cent to $7 in 12 months’ time. At 1201 AEST Carndo shares were up 19 cents, or 3.6 per cent, to $5.45. The stock is down 22 per cent this year. 

There are now six buy recommendations on Cardno’s stock compared with five analysts who have a sell on the shares. 

“We expect Cardno to continue to grow earnings organically and via M&A and cross-selling, a model that has delivered 13 per cent compound EPS growth since listing,” Evans says. “We expect Ccrdno to grow earnings 10 per cent in its 2014 financial year and 18 per cent in 2015, resulting in high single-digit EPS growth.”

Andrew Buckley, Cardno’s chief executive, seemed nonplussed by Morgan Stanley’s positive rating on his company.

“Organisations take account of analyst recommendations but it’s not the be all and end all,” Buckley told Markets Spectator. “The best thing is to grow earnings.”

Buckley says Cardno’s stock price this year “has been tarred with the brush of being a mining services company”. But he says only about 10 per cent of the company’s revenue is derived from such an area.

“Market sentiment is not good at the moment,” Buckley says. “Our PE is lower than it should be.”

The chief executive would not comment as to whether he agrees with Morgan Stanley’s earnings forecasts. Buckley did say he is positive about the outlook for the US economy, where Cardno derives 55 per cent of its revenue, but is cautious about the Australian economy, believing improvement will not happen until later in 2014.

Cardno is doing environmental consulting work for BP in relation to the oil spill at the company’s Gulf of Mexico Deepwater Horizon accident. Buckley says sees its business prospects in the US growing and superseding its Gulf of Mexico work.