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Fluor to Build Novo Nordisk's $2B API Manufacturing Unit

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Fluor Corporation (FLR - Free Report) recently announced that it has clinched a major engineering, procurement, construction and construction management contract from Denmark-based pharmaceutical behemoth, Novo Nordisk. The engineering and construction firm booked $1.2-billion value of the investment in fourth-quarter 2016.

Novo Nordisk had declared its plans to build North Carolina’s largest diabetes Active Pharmaceutical Ingredient (API) manufacturing facility in Aug 2015. Fluor, which has been providing basic design services for the project, ever since its inception, has now geared up to execute full-scale work on this $2-billion project.

One of North Carolina’s most noteworthy economic developments, this API facility is expected to generate 2,500 craft employees and subcontractor jobs during the peak construction phase. This facility, which will produce life-saving drugs, is likely to create 700 new jobs, once it is operational. Fluor anticipates wrapping up construction of the project by mid 2019.

Flour believes that its expertise in key areas, including power generation, staffing & construction equipment and water, make it an ideal contractor for this premium project. Undoubtedly, this contract is one of the major wins secured by the company in the current year and fortifies Fluor’s foothold in life sciences and manufacturing projects in the southeast U.S.

In a cut-throat competitive environment, Fluor consistently emphasizes on cost controls, such that it delivers not only the performance requirements specified by its clients, but also their budgetary needs. The company has a solid track record of receiving awards and during the third quarter, new awards were up 32.1% to $7.0 billion on a year-over-year basis.  Management remains optimistic about continuation of this trend in the future as well, which is estimated to drive growth for the company.

Fluor’s Prospects Remain Dull

Despite the robust contract wins, in the past six months, the company’s shares recorded an average return of 4.6%, way below the Zacks categorized Engineering/R&D Services industry average of 18.5%. Also, Fluor has a dismal earnings surprise history, with average earnings miss of 3.6%, missing estimates thrice over the trailing four quarters. Moreover, the company has been faring poorly on the estimate revision front as analysts have become increasingly bearish on the stock, over the past couple of months.

With seven downward revisions compared with no upward revision in the past two months, the Zacks Consensus Estimate for 2016 earnings has declined from $3.24 to $2.30. Sluggish backlog conversion problem is a persistent crisis in this sector, mainly attributable to sluggish macroeconomic conditions. This implies that the company’s backlog level cannot be regarded as a reliable indicator of earnings growth. In addition, Fluor’s unimpressive revenue trajectory is thwarting its bottom-line performance.

Precipitous decline in the prices of crude oil and certain metals have affected the ability of Fluor’s clients to fund new projects. Lower commodity prices continue to impact cash flow of Fluor’s customers, affecting their ability to fund new projects. In such circumstances, it is most likely that these clients will maintain a cautious approach while taking investment decisions, adding to the company’s woes.

Stocks to Consider

Fluor currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the broader sector include II-VI Incorporated , Applied Industrial Technologies Inc. (AIT - Free Report) and The Middleby Corporation (MIDD - Free Report) .

While II-VI Incorporated sports a Zacks Rank #1 (Strong Buy), Applied Industrial and Middleby Corporation carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

II-VI Incorporated has registered a remarkable positive average surprise of over 39.8% in the four trailing quarters, driven by four strong consecutive beats.

Applied Industrial Technologies has managed to beat estimates twice in the trailing four quarters and has a positive earnings surprise of 4.9%.

Middleby Corporation beat earnings in each of the trailing four quarters, resulting in an average surprise of 15.9%.

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