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Robust Backlog Growth Aids Fluor (FLR), Project Delays Hurt
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Fluor Corporation (FLR - Free Report) is benefiting from robust demand for its engineering and construction solutions, which is reflected in its new award wins and backlog growth. Also, its diversified business is encouraging.
The company’s earnings estimate for 2024 has moved north in the past seven days to $2.84 per share from $2.82, showcasing growth rate of 4% year over year. Furthermore, the earnings growth rate of the first quarter of 2024 is 92.9% year over year. The growth prospect is further solidified with a VGM Score of A, backed by a Growth Score of A and a Value Score of B. The positive trend signifies bullish analysts’ sentiments, robust fundamentals and prospects of an outperformance in the near term.
However, the aforementioned tailwinds are partially offset by growing costs due to project delays and foreign currency risks. These metrics portray risks, thus putting pressure on the margins of the company.
Image Source: Zacks Investment Research
Shares of this Zacks Rank #3 (Hold) company have increased 9.3% in the past month compared with the Zacks Engineering - R and D Services industry’s 9.5% growth.
Factors Driving Growth
Growing Backlog: Fluor is witnessing business prospects and a demand uptrend in various sectors including the chemicals sector, energy transition, fuel production, as well as mining and metals, and big data. This growing trend is reflected in a solid uptick in new awards and backlog value.
In 2023, Fluor successfully secured consolidated new awards amounting to $19.52 billion with 87% of them being reimbursable. At 2023 end, the total backlog of the company was $29.44 billion (76% reimbursable), up 13.2% year over year. Among the total backlog, 62% of the total projects are located outside of the United States, up from 49% reported in the prior year. This substantial backlog underscores the continued strong demand for Fluor's services and the recognized value it brings to its clients.
Business Diversity: Fluor’s market diversity remains a key strength that helps it mitigate the cyclicality of the markets in which it operates. Its strategy of maintaining a good business portfolio mix permits it to focus on the more stable business markets and capitalize on developing the cyclical markets at suitable times. The long-term prospects of the company also remain strong with existing growth opportunities in renewable energy, gas-fired combined cycle generation and air emissions compliance projects for existing coal-fired power plants.
The project mix witnessed by the company at the end of 2023 backlog and new award gains portray the most diverse line of businesses than the past few years. In 2023, the company received more than 200 active energy transition projects, many of which were front-end technical solutions scopes of work, which position it well for EPCM conversion. Going forward, Fluor has plans to implement data analytics in projects, thus minimizing risks and maximizing returns.
NuScale Nuclear Projects: Fluor, being an industry leader in nuclear remediation at government facilities throughout the United States, is expected to benefit from the rising demand for energy across the globe. The U.S. Nuclear Regulatory Commission's approval for NuScale’s design opened doors for FLR to respond to customers looking for a unique, flexible, safe and carbon-free energy solution.
During the fourth-quarter 2023 earnings call, the company shed light on a NuScale investment, wherein it is engaged in an exclusive process with a strategic investor. This would provide an accelerated path to the commercialization of NuScale and thus offer a way that maximizes returns for Fluor’s shareholders. The commercialization prospects are primarily witnessed in the US, Europe and Eastern Europe.
Factors Hindering Growth
Project Delays: The company is facing cost growth primarily due to project delays, resulting in schedule extensions, which are in turn compressing the margins. During 2023, Fluor’s Energy Solutions and the Mission Solutions business segments witnessed cost growth due to schedule extensions over project delays.
The Energy Solutions segment was impacted by $91 million worth of cost growth and schedule extension on a large upstream legacy project that is slated to be completed in the first quarter of 2024. The Mission Solutions segment was negatively impacted by a $30 million charge recognized in the first half of 2023 for cost growth associated with additional schedule delays on a weapons facility project, which is expected to be complete in mid-2024.
Foreign Currency Risks: Fluor is subject to foreign currency risks, especially when project contract revenues are denominated in a currency different than the contract costs. In 2023, the company faced $98 million in foreign currency loss against $25 million in currency gains in the prior year.
Zacks Rank
Here are some better-ranked stocks from the Construction sector.
NVR delivered a trailing four-quarter earnings surprise of 8.1%, on average. The stock has gained 24.5% in the past six months. The Zacks Consensus Estimate for NVR’s 2024 sales and earnings per share (EPS) indicates growth of 7.7% and 4.6%, respectively, from the prior-year levels.
Vulcan Materials Company (VMC - Free Report) currently sports a Zacks Rank of 1. VMC delivered a trailing four-quarter earnings surprise of 19.5%, on average. The stock has gained 28.6% in the past six months.
The Zacks Consensus Estimate for VMC’s 2024 sales and EPS indicates an improvement of 1.4% and 18.3%, respectively, from a year ago.
Sterling Infrastructure, Inc. (STRL - Free Report) presently sports a Zacks Rank of 1. It has a trailing four-quarter earnings surprise of 20.4%, on average. Shares of STRL have increased 43.4% in the past six months.
The Zacks Consensus Estimate for STRL’s 2024 sales and EPS indicates a rise of 11.7% and 11.4%, respectively, from the prior-year levels.
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Robust Backlog Growth Aids Fluor (FLR), Project Delays Hurt
Fluor Corporation (FLR - Free Report) is benefiting from robust demand for its engineering and construction solutions, which is reflected in its new award wins and backlog growth. Also, its diversified business is encouraging.
The company’s earnings estimate for 2024 has moved north in the past seven days to $2.84 per share from $2.82, showcasing growth rate of 4% year over year. Furthermore, the earnings growth rate of the first quarter of 2024 is 92.9% year over year. The growth prospect is further solidified with a VGM Score of A, backed by a Growth Score of A and a Value Score of B. The positive trend signifies bullish analysts’ sentiments, robust fundamentals and prospects of an outperformance in the near term.
However, the aforementioned tailwinds are partially offset by growing costs due to project delays and foreign currency risks. These metrics portray risks, thus putting pressure on the margins of the company.
Image Source: Zacks Investment Research
Shares of this Zacks Rank #3 (Hold) company have increased 9.3% in the past month compared with the Zacks Engineering - R and D Services industry’s 9.5% growth.
Factors Driving Growth
Growing Backlog: Fluor is witnessing business prospects and a demand uptrend in various sectors including the chemicals sector, energy transition, fuel production, as well as mining and metals, and big data. This growing trend is reflected in a solid uptick in new awards and backlog value.
In 2023, Fluor successfully secured consolidated new awards amounting to $19.52 billion with 87% of them being reimbursable. At 2023 end, the total backlog of the company was $29.44 billion (76% reimbursable), up 13.2% year over year. Among the total backlog, 62% of the total projects are located outside of the United States, up from 49% reported in the prior year. This substantial backlog underscores the continued strong demand for Fluor's services and the recognized value it brings to its clients.
Business Diversity: Fluor’s market diversity remains a key strength that helps it mitigate the cyclicality of the markets in which it operates. Its strategy of maintaining a good business portfolio mix permits it to focus on the more stable business markets and capitalize on developing the cyclical markets at suitable times. The long-term prospects of the company also remain strong with existing growth opportunities in renewable energy, gas-fired combined cycle generation and air emissions compliance projects for existing coal-fired power plants.
The project mix witnessed by the company at the end of 2023 backlog and new award gains portray the most diverse line of businesses than the past few years. In 2023, the company received more than 200 active energy transition projects, many of which were front-end technical solutions scopes of work, which position it well for EPCM conversion. Going forward, Fluor has plans to implement data analytics in projects, thus minimizing risks and maximizing returns.
NuScale Nuclear Projects: Fluor, being an industry leader in nuclear remediation at government facilities throughout the United States, is expected to benefit from the rising demand for energy across the globe. The U.S. Nuclear Regulatory Commission's approval for NuScale’s design opened doors for FLR to respond to customers looking for a unique, flexible, safe and carbon-free energy solution.
During the fourth-quarter 2023 earnings call, the company shed light on a NuScale investment, wherein it is engaged in an exclusive process with a strategic investor. This would provide an accelerated path to the commercialization of NuScale and thus offer a way that maximizes returns for Fluor’s shareholders. The commercialization prospects are primarily witnessed in the US, Europe and Eastern Europe.
Factors Hindering Growth
Project Delays: The company is facing cost growth primarily due to project delays, resulting in schedule extensions, which are in turn compressing the margins. During 2023, Fluor’s Energy Solutions and the Mission Solutions business segments witnessed cost growth due to schedule extensions over project delays.
The Energy Solutions segment was impacted by $91 million worth of cost growth and schedule extension on a large upstream legacy project that is slated to be completed in the first quarter of 2024. The Mission Solutions segment was negatively impacted by a $30 million charge recognized in the first half of 2023 for cost growth associated with additional schedule delays on a weapons facility project, which is expected to be complete in mid-2024.
Foreign Currency Risks: Fluor is subject to foreign currency risks, especially when project contract revenues are denominated in a currency different than the contract costs. In 2023, the company faced $98 million in foreign currency loss against $25 million in currency gains in the prior year.
Zacks Rank
Here are some better-ranked stocks from the Construction sector.
NVR, Inc. (NVR - Free Report) currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NVR delivered a trailing four-quarter earnings surprise of 8.1%, on average. The stock has gained 24.5% in the past six months. The Zacks Consensus Estimate for NVR’s 2024 sales and earnings per share (EPS) indicates growth of 7.7% and 4.6%, respectively, from the prior-year levels.
Vulcan Materials Company (VMC - Free Report) currently sports a Zacks Rank of 1. VMC delivered a trailing four-quarter earnings surprise of 19.5%, on average. The stock has gained 28.6% in the past six months.
The Zacks Consensus Estimate for VMC’s 2024 sales and EPS indicates an improvement of 1.4% and 18.3%, respectively, from a year ago.
Sterling Infrastructure, Inc. (STRL - Free Report) presently sports a Zacks Rank of 1. It has a trailing four-quarter earnings surprise of 20.4%, on average. Shares of STRL have increased 43.4% in the past six months.
The Zacks Consensus Estimate for STRL’s 2024 sales and EPS indicates a rise of 11.7% and 11.4%, respectively, from the prior-year levels.