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Fluor to Refurbish Darlington Nuclear Station in Canada

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Engineering and construction company Fluor Corporation (FLR - Free Report) recently secured a new contract with Ontario Power Generation (OPG), for the procurement and construction of redevelopment work at the Darlington Nuclear Generating Station in Canada.

The undisclosed contract value will be booked in the fourth quarter of 2017.

Contract Details

Since early 1990s, the Darlington Nuclear Generating Station has generated roughly 20% of Ontario’s energy requirements, which caters to more than two million homes daily. The facility is going through a mid-life refurbishment to extend its life.

Under the contract, Fluor will replace the emergency power generators for Units 1 and 2, to ensure site safety, and are part of the infrastructure projects in progress to revamp the power station.

Late last month, Fluor secured another contract with the Massachusetts Bay Transportation Authority (“MBTA”). Fluor-led joint venture (consisting of Balfour Beatty Infrastructure, Herzog Contracting Group and The Middlesex Corp.) was chosen as the design-build team for the projected $2-billion Green Line Light Rail Extension in Boston.

Fluor also completed a high priority 38kv power line close to San Juan in November.The contract called for power grid restoration, and repair and replacement of structures and equipment supporting the re-energization. It also involved recommissioning of electrical infrastructure in eastern Puerto Rico.

Present Business Scenario

Fluor has a solid track record of receiving awards. Management remains optimistic about continuation of this trend in the future as well, which is anticipated to drive growth. The company has encouraging long-term prospects in fields such as renewable energy, gas-fired combined cycle generation and air emissions compliance projects.

Based on the current trends, Fluor remains confident that it will secure two major EPC mining projects over the next few quarters. The company’s healthy level of backlog in infrastructure, government, life sciences and advanced manufacturing has enabled it to offset multiyear declines in mining, metals, and oil & gas markets.

Fluor has returned 25.4% in the past three months, outperforming the industry’s gain of 15.3%.

 

Despite such impressive growth drivers, volatility in commodity prices, and the cyclical nature of the company’s commodity-based business lines pose significant challenges for the coming quarters.

Further, the company’s margins are under pressure as it is transitioning from higher-margin engineering to lower-margin construction activities, particularly related to the Energy & Chemicals and Mining segment. Slow backlog conversion is a persistent problem in this sector. Low capital spending, intermediate softness in key end markets and continuous erosion in the backlog levels are also other pressing issues.

Nevertheless, we believe this Zacks Rank #3 (Hold) company’s streamlined business structure, and gradual improvement in energy and mining sectors will offer growth opportunities, going forward.

Stocks to Consider

Some better-ranked stocks from the same space are Boise Cascade, L.L.C. (BCC - Free Report) , EMCOR Group, Inc. (EME - Free Report) and Willdan Group, Inc. (WLDN - Free Report) . While Boise Cascade and EMCOR sport a Zacks Rank #1 (Strong Buy), Willdan Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boise Cascade has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 116.3%.

EMCOR Group has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 17%.

Willdan Group has outpaced estimates in each of the preceding four quarters, with an average earnings surprise of 44.8%.

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