Fluor Corp. Reiterated at Neutral

We maintain a Neutral recommendation on Fluor Corporation ( FLR - Analyst Report ) .

The company posted robust top-line and bottom-line results during first-quarter 2012, with its revenue increasing 24% year over year. Fluor’s benefactor for the quarter was a significant rise in Industrial & Infrastructure, Oil & Gas and Global Services revenues. The international market for oil & gas production and refining and mining were also strong.

However, the company’s overall cost and expenses increased significantly by 24.6%, slightly affecting its earnings before taxes. Further, uncertain economic conditions remain a matter of concern. As such we prefer to remain on sidelines.

Fluor serves a diverse set of industries worldwide, including oil and gas, chemical and petrochemicals, transportation, mining and metals, power, life sciences and manufacturing. It is also a primary service provider to the U.S. federal government. The company’s prime competitor is Jacob Engineering Group ( JEC - Analyst Report ) .

Fluor is one of the few engineering and construction companies with the technological expertise, logistics and procurement capabilities, and project management experience needed to execute on a large variety of projects. Its favorable contract mix, diverse service offerings and strong relationships around the world allow it to sustain operating margin going forward relative to its peers without diminishing growth potential.

The company is performing quite well. New awards in first-quarter 2012 continued to be strong at $8.4 billion while new awards were $26.9 billion in 2011. The company is benefiting from substantial increase in mining & metals volume, as well as sizable orders within the Oil & Gas segment. Further, Fluor’s international marketremains robust, with 84% of awards derived from outside the US in 2011 with focus on Australia, the Middle East, Latin America and Canada.

However, backlog is subject to unexpected adjustments and cancellations; therefore, it may not be a reliable indicator of future earnings. Its government contracts may be terminated at any point of time. Moreover, if it does not comply with restrictions and regulations imposed by the government, contracts may be terminated and the company will be unable to enter into future government contracts. The termination of government contracts could significantly reduce expected revenue and profits.

Though the company maintained its 2012 earnings guidance and remains well positioned for growth in its diversified market, the prevailing uncertain market remains a matter of concern.

Fluor Corporation currently has a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.