• THESIS : In-line Q4/11 results
Fluor’s ability to execute on extremely large, challenging projects on a global basis positions the company well to take advantage of the large slate of mega projects planned in the years ahead.
1) Visibility – strong backlog of $39B (+13% y/y)
with a deep prospect list in Mining, O&G, and, increasingly, Power
2) O&G Still to Kick In – we expect O&G backlog to ramp in 2012 as Upstream FEEDs transition into EPC opportunities and Downstream FEED opportunities improve.
3) Attractive Valuation – Fluor trades at 14x 2013E EPS, below its 20x mid-cycle multiple. We believe increased O&G awards may lead to a multiple re-rating.
Target price is based on 15x cash-adjusted 2013E EPS, plus our forecast for freehold cash of US$9.00 at year-end. 2012 EPS guidance of $3.40-3.80 (including $0.20 for NuScale) was reiterated.
Q4/11 revenue/EBITDA/EPS was $6.3B/$300M/$0.90 vs. consensus at $6.4B/$284M/$0.82. The bottom line beat was mostly
attributable to lower interest expense and a tax rate of 26% vs. our 30% estimate.
I&I segment margin was strong at 4.5%. Management appeared more confident that this is a sustainable level due to multiple mining programs underway.
At $4.3B, (book-to-bill of 0.7:1) new awards were weaker We see backlog increasing 6% in 2012, but gross margin in backlog
increasing at a greater rate. In short, more FEED work (low dollar
contribution/high margin) continues to get booked, and EPC awards should also add to backlog, but Mining burn increases should act as a slight offset.
Gabbard is 97% complete; 1H/12E wrap-up.
Net cash stood at $2.2B, watch for potential buyback activity on a pullback and possible tuck-in acquisitions. The Board hiked the dividend 28% to $0.64/year.
. Our target is based on 15x cash-adjusted 2013E EPS, plus our forecast for freehold cash of US$9.00 at year -end. Fluor’s mid-cycle multiple since 2001 is 20x, and thus we see room for multiple expansion should broader macro concerns lessen.
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