Foster Wheeler Moving On

Foster Wheeler (Nasdaq: FWLT  ) might be more difficult to analyze than most stocks. That's less because of the business -- though highly cyclical engineering and construction firms like this can be tricky to value -- and more because of the company's recent near-death experience. It appears that Foster Wheeler has passed its recovery stage, and has now begun to exploit the hot market for large-scale building projects.

Like most other builders, Foster Wheeler offered a solid quarter. Revenue rose about 42%, margins expanded (though gross margins were lower), and EBITDA grew about 37% from last year, net of some one-time items. New award growth was also quite strong, and the backlog continues to grow.

The story at Foster Wheeler won't look too different from those of other companies like Fluor (NYSE: FLR  ) , Shaw Group (NYSE: SGR  ) , and Washington Group (Nasdaq: WGII  ) . The company's enjoying very strong near-term demand from petrochemical companies such as ExxonMobil (NYSE: XOM  ) and Chevron (NYSE: CVX  ) , and there's a widespread assumption that demand for new power generation will more than pick up the slack when petrochemical demand starts to soften in a few years' time.

Perhaps akin to Chicago Bridge & Iron (NYSE: CBI  ) , Foster Wheeler is a more focused play on these trends. The company gets nearly all of its business from the oil/gas/petrochemical and power-generation sectors, doing relatively little in environmental, industrial, or infrastructure projects. There's nothing necessarily wrong with that, but it's a little nugget that prospective investors may want to keep in mind.

Foster Wheeler doesn't really stand out as a compelling bargain to me today. I certainly wouldn't argue against the notion that it might see better or stronger-than-average earnings leverage in the next few years, since it's so focused on the energy/chemical markets. But that would give the company a higher risk rating as well.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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