On Tuesday, Citi upgraded Fluor Corporation (NYSE:FLR) stock from Neutral to Buy and increased the price target to $65, up from the previous $52. The upgrade reflects a positive outlook on the company's performance and an expected increase in earnings per share (EPS) by 2026.
Kaplowitz highlighted Fluor's growing backlog, which has risen by mid-20% year-over-year as of the second quarter of 2024, and noted the company's enhanced execution. Fluor has also successfully reduced its legacy cash drag by over $200 million in 2024.
The firm's decision to upgrade Fluor's stock is primarily based on a long-term perspective, despite anticipating that the book-to-bill ratio could be less than 1x in the upcoming quarters.
Citi anticipates the book-to-bill ratio, which historically has shown a strong correlation with Fluor's stock price, to improve and likely exceed 1x around mid-2025. In the interim, considering Fluor's solid execution and its relative valuation discount compared to the S&P, the stock is expected to perform well.
The company is also projected to benefit from the potential monetization of its approximately 50% equity stake in SMR, which could be worth several hundred million dollars.
For the third quarter, Citi expects a strong performance on the earnings front, despite a relatively quiet period in terms of new bookings and the possibility of continued modest disruptions on fixed-price work.
Fluor's management remains optimistic about a rebound in bookings in 2025, driven by visibility in sectors such as Life Sciences, Mining, and Data Centers.
Furthermore, the recent approval of the Hanford Tank Waste Operations and Closure, LLC contract adds to over $5 billion in additional project scope not yet reflected in Fluor's revenue.
InvestingPro Insights
Fluor Corporation's recent upgrade by Citi aligns well with several key metrics and insights from InvestingPro. The company's market capitalization stands at $9.23 billion, reflecting its significant presence in the Construction & Engineering industry. Fluor's P/E ratio of 23.85 (adjusted for the last twelve months as of Q2 2024) suggests that investors are willing to pay a premium for its earnings, possibly due to the growth prospects highlighted by Citi.
InvestingPro data shows that Fluor's revenue for the last twelve months as of Q2 2024 was $15.74 billion, with a revenue growth of 4.86%. This growth, coupled with the company's expanding backlog mentioned in the article, supports Citi's positive outlook. Additionally, Fluor's operating income margin of 2.41% for the same period indicates the company's ability to generate profits from its operations, which is crucial given the focus on enhanced execution in the analyst's report.
Two relevant InvestingPro Tips further support the bullish stance:
1. "Net income is expected to grow this year," which aligns with Citi's projection of increased earnings per share by 2026.
2. "Holds more cash than debt on its balance sheet," suggesting financial stability that could support future growth initiatives.
These insights are just a sample of the valuable information available on InvestingPro, which offers 14 additional tips for Fluor Corporation, providing investors with a comprehensive view of the company's financial health and market position.
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