Jefferies Reiterates Hold On Northwest Pipe

Jefferies is assuming coverage of Northwest Pipe NWPX and reiterating a HOLD rating. NWPX has restated its financials for 2006-08. It had been delinquent with its filings for a year. Sales trends have improved, but margins are very weak. It expects NWPX's scheduled conference call next week to elaborate on several key issues affecting earnings and cash flows. NWPX has recently filed financial statements for 3Q09 to 3Q10, and restated prior years' results. Its accounting may be resolved but Jefferies is concerned over the sizes of some restatements and the number of them, and its implications for future results. The current operating margin is 1%. Jefferies expect the margin to rise but even our 2011 forecast of 3% is 700 bps below peers and a risk to earnings. NWPX has also been using cash and increasing debt. NWPX's fundamental metrics trail its peers and we have several concerns. Jefferies is raising its target to $22 from $17 as 3Q earnings were improved. The target contemplates a 30% discount to peers on EV-Sales. Risks include the implications of the restatements, pricing and the operating margin. NWPX closed at $21.66