Fluor Corporation FLR recently announced that it has clinched a contract from Shell for the engineering, procurement and fabrication of Shell’s Penguins floating production storage as well as offloading (FPSO) vessel in the North Sea. The company will book the contract value in fourth-quarter 2017.

Per the deal, Fluor has been assigned the task to design, fabricate as well as deliver the pre-commissioned FPSO to the North Sea. The FPSO will be designed to carry a production capacity of 45,000 barrels of oil equivalent per day, with a storage capacity of 400,000 barrels. The FPSO is anticipated to operate 20 years uninterruptedly, without dry docking and would facilitate the extension of the life of the Penguins oil and gas fields. The project follows the company’s successful delivery of the Malampaya Phase 3 Project in Philippines and would be led by its Manila, Philippines office.

Existing Business Scenario

Fluor has an impressive track record of receiving awards, and management remains optimistic about continuation of this trend in future as well.  Going forward, Fluor anticipates an increase in front-end engineering awards, which should help boost growth. Moreover, the company remains optimistic about investment projects, particularly on LNG projects in North America, chemical facilities and pipeline projects in the United States, as well as refining and chemical projects in the Middle East and Asia.

The company is enjoying a healthy level of backlog in infrastructure, government, life sciences and advanced manufacturing, which has offset multi-year declines in mining, metals and oil & gas markets. Additionally, being an industry leader in nuclear remediation at government facilities throughout the United States, the company, is likely to benefit from the rising demand for energy globally.

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. Notably, the Zacks Rank #3 (Hold) company has returned 36.4% in the past three months, outperforming the industry’s growth of 12.8%.

Despite these positives, volatility in commodity prices and the cyclical nature of the company’s commodity-based business lines, poses significant challenges for it in the upcoming quarters.  Going forward, it also believes that clients of Energy, Chemicals and Mining segment will maintain a cautious approach while taking investment decisions, which will add to the woes. This apart, the company is facing a dearth of engineering and new awards currently which has hurt growth prospects significantly.

Stocks to Consider

Some better-ranked stocks from the same space include D.R. Horton, Inc. DHI, Jacobs Engineering Group Inc. JEC and NVR, Inc. NVR. While D.R. Horton sports a Zacks Rank #1 (Strong Buy), Jacobs Engineering Group and NVR carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

D.R. Horton has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 5.0%.

Jacobs Engineering Group has outpaced estimates in the preceding four quarters, with an average earnings surprise of 9.7%.

NVR has surpassed estimates in the preceding four quarters, with an average positive earnings surprise of 17.2%.

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Jacobs Engineering Group Inc. (JEC): Free Stock Analysis Report
 
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