Investors dump Leighton Holdings, is it time to buy?

Is investor panic over corruption claims an overreaction, or a fair reflection of bigger problems?

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The re-emergence of corruption claims against construction and project company Leighton Holdings (ASX: LEI) sent shares in the company plummeting last week. The company was heavily punished by investors, who pushed shares down almost 10% on Thursday and another 4.7% on Friday.

It has made for a particularly grim year for Leighton, which is now a big underperformer for the year, down 6% compared to the 11% increase in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). But does it represent an opportunity to buy the company at a good price?

Although the allegations have been widely reported, as the company itself points out they are not actually new. This suggests that many investors may not have been aware of the allegations, or did not realise the extent of them.

The allegations, as Leighton put it, allege "a culture of corruption and cover ups" inside the company. The Australian says documents obtained by Fairfax detail cases of bribery, corruption and kick-backs being paid out in various countries to win big contracts.

The company claims the allegations have been dealt with and new corporate governance policies, including revising the company's Code of Business Conduct, have been installed to prevent any further ethics breaches. If we assume this to be true, Leighton's current share price of $16.74 looks somewhat attractive.

The main appeal is Leighton's improved first half performance, which sets the company up for a good full-year result. Earnings per share for the first half of the 2013 were up from 34 cents to 108, a 217% increase. For the full 2013 year, the company forecasts underlying profit after tax of $520-600 million, up from $448 in 2012, for year on year growth of 16-34%.

Leighton is not the only company to have suffered the wrath of investor panic this year. Newcrest Mining (ASX: NCM) shares were sold off heavily in June as the gold price plunged and investors bailed out, while shares in McMillan Shakespeare (ASX: MMS) dived 55% on fears of government regulation prior to the election.

Foolish takeaway

While on the surface Leighton looks like it could be a case of 'one man's trash is another man's treasure', investors thinking of taking advantage of the lower price will need to content themselves with Leighton's historic allegations of dodgy dealings and management acting against investor's best interests.

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Motley Fool contributor Regan Pearson does not own shares in any company mentioned.

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