Advanced Technology And Energy Transition Projects Will Expand Future Opportunities

Key Takeaways

• Fluor's growth in Urban Solutions and focus on data centers could drive significant revenue increases through diverse advanced technology projects.
  
• Strategic engagements in energy and mining sectors expand growth potential through expertise in traditional and low-carbon power projects, alongside high-value contracts.
  
• Revenue recognition delays, project execution challenges, and geopolitical uncertainties could impact Fluor's short-term margins and overall revenue growth.

Catalysts

Provides engineering, procurement, and construction (EPC); fabrication and modularization; operation and maintenance; asset integrity; and project management services worldwide.

• Fluor's Urban Solutions segment is experiencing significant growth, with a 72% increase in backlog due to new diverse projects in advanced technology and life sciences, expected to drive revenue and earnings growth.
  
• The focus on data centers and advanced cooling processes, along with modularization designs, is expected to position Fluor as a key player in this expanding market, potentially increasing revenue significantly as CapEx from tech companies grows.
  
• The awarded projects and ongoing engagements in Mining & Metals, including large EPC projects and a rare earth minerals refinery, are anticipated to bolster Fluor's backlog and future earnings.
  
• Energy Solutions is pivoting towards leveraging its expertise in traditional energy, energy transition, and low-carbon power projects, increasing the potential for future revenue growth as global energy demands diversify.
  
• Mission Solutions' involvement in high-value DOE contracts and anticipated new nuclear and national security projects provide a robust growth pipeline, enhancing earnings through strategic focus on high-assay uranium and related nuclear markets.

Fluor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fluor's revenue will grow by 8.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.6% today to 3.1% in 3 years time.
• Analysts expect earnings to reach $617.1 million (and earnings per share of $3.67) by about December 2027, up from $260.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.0x on those 2027 earnings, down from 35.3x today. This future PE is lower than the current PE for the US Construction industry at 29.8x.
• Analysts expect the number of shares outstanding to decline by 0.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.14%, as per the Simply Wall St company report.

Fluor Future Earnings Per Share Growth

Risks

• The revenue recognition delay in the Energy Solutions segment, combined with project cancellations and delays, could indicate challenges in project execution and timing, impacting short-term revenue and margins.
  
• Reduced margin guidance suggests declining profitability in the Energy Solutions segment, indicating potential issues with cost management or project mix which might affect overall earnings.
  
• Potential geopolitical and regulatory uncertainties could impact future project approvals and commencements, especially in new and emerging markets, potentially affecting revenue growth projections.
  
• The volatility stemming from legacy projects, although decreasing, continues to create financial uncertainty which may influence net margins and earnings stability.
  
• With the deconsolidation of NuScale and its transition strategy remaining uncertain, potential revenue contribution from this segment might be unpredictable, affecting projected cash flow and earnings.

Valuation

• The analysts have a consensus price target of $56.95 for Fluor based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $67.0, and the most bearish reporting a price target of just $44.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $20.1 billion, earnings will come to $617.1 million, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 7.1%.
• Given the current share price of $53.45, the analyst's price target of $56.95 is 6.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.