Fluor Corporation – Global Recovery Giant

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Fluor Corporation 
FLR : NYSE : US$60.36 Buy , Target US$70.00

• 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.

P.S. Please feel free to forward this along to friends, family, co-workers, or anyone else you think might be interested in this market letter ( http://www.amp2012.com)


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