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Why This Infrastructure Stock Popped More Than 10% Friday

By Neha Chamaria – Nov 5, 2021 at 2:58PM

Key Points

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Fluor's end markets are reviving, and it sees stronger days ahead.

What happened

Investor expectations regarding Fluor were already running high after the company struck a massive deal last week. Friday morning, Fluor's (FLR 0.31%) third-quarter numbers didn't just crush Wall Street estimates; the company also upped its full-year guidance yet again, giving investors one more reason to bet big on the infrastructure stock. Fluor shares were up almost 12.7% as of 11:55 a.m. EDT Friday.

So what

Here are some notable numbers from Fluor's third-quarter earnings report (all changes year over year) released the morning of Nov. 5:

  • New awards up nearly 137% to $3 billion.
  • Revenue down 10% to $3.1 billion.
  • Net income from continuing operations up 72% to $36.9 million.

As an engineering and construction services company, Fluor's revenue growth potential depends entirely on the number of contracts it can secure. The COVID-19 pandemic hit the company really hard, especially when oil prices crashed. Fluor serves multiple sectors and industries, but energy and chemicals are its largest end market.

A group of workers at a construction site.

Image source: Getty Images.

That partly explains the drop in Fluor's Q3 revenue: It had fewer contracts to fulfill as last year's plunge in oil and gas prices resulted in the drying up of awards from oil and gas companies. The company also saw similar trends from other key end markets like mining, industrials, and infrastructure.

Given this backdrop, investors were hugely encouraged by the recovery in Fluor's business, as evidenced by the growth in its new awards in the third quarter. Notable awards included:

  • $789 million for a 12-month extension to its Savannah River Site contract with the U.S. Department of Energy (DOE).
  • $495 million for Operation Allies Welcome at New Mexico's Holloman Air Force Base to construct facilities for evacuees from Afghanistan.
  • $316 million for expansion of Phase 2 of the Interstate 35E project under the Texas Department of Transportation.

Fluor ended the quarter with a backlog of $21 billion. Although that's still way below its backlog of $27.8 billion as of the end of Q3 in 2020, it was flat sequentially, indicating a steady contracts flow. "We believe our backlog will stabilize over the next several quarters as clients express enthusiasm around new opportunities in infrastructure, mining, government and energy transition," said Fluor's CEO David Constable.

Now what

The biggest takeaway from Fluor's Q3 report was the company's outlook for 2021. For the second straight quarter, Fluor increased its guidance for 2021 and now expects to earn adjusted earnings per share (EPS) of $0.85 to $1 per share, up significantly from its previous guidance of $0.60 to $0.80 per share. With Fluor also paring debt by nearly 30% during the quarter, investors foresee better days ahead for the infrastructure stock.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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