Fluor Corp.

01/21/2015 7:00 am EST

Focus: STOCKS

Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

Our top pick for 2015 is one of the largest infrastructure-engineering firms in the world, explains value investor expert J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

Fluor Corp. (FLR) serves a diverse set of industries, including oil and gas, chemicals and petrochemicals, transportation, mining and metals, power, life sciences, and manufacturing.  It is also a primary service provider to the US federal government.

FLR’s stock price has dropped dramatically from a high of $84 earlier this year to the recent $59.64. Investors abandoned FLR when the price of oil plummeted during the past several months.

The company derives 56% of sales from customers in the oil and natural gas industry, but Fluor has garnered huge new contracts during the past six months, including several from companies in the oil sector.

Most of the company’s projects involve large, long-term commitments, which are less exposed to short-term fluctuations in the price of oil.

Fluor also won new contracts to build hefty infrastructure projects, including the span that will replace the Tappan Zee Bridge across the Hudson River near New York City. The company’s backlog increased 5% in the third quarter compared to the prior quarter.

Fluor’s impressive $42 billion backlog is 16% higher than a year ago. In addition, 80% of the company’s contracts are cost plus, which allows Fluor to pass along higher costs to its customers.

Revenues will likely increase 18% in 2015 after falling 19% in 2014. EPS will climb 15% to 4.93 in 2015. Revenues and earnings could rise further if Fluor can win additional contracts in 2015.

While FLR’s stock price bumps along near 52-week lows, the company will spend part of its $2.4 billion cash hoard to buy back 10% of its shares. At only 13.9 times current EPS and with a dividend yield of 1.4%, FLR’s stock price is clearly undervalued.

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