Renewable And Hydrogen Sectors Will Boost Business Despite Policy Risks

Key Takeaways

• Stabilizing trade policies, increased domestic investment, and public policy support are expected to accelerate Fluor's revenue growth and expand its high-quality project backlog.
  
• Shifts to reimbursable contracts, growth in renewables, and tighter project oversight should reduce risk, improve margins, and enhance long-term earnings visibility.
  
• Ongoing project delays, cost overruns, market slowdowns, and monetization challenges are pressuring margins, cash flow, and Fluor's ability to pursue new growth.

Catalysts

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

• Short-term client hesitancy driven by trade policy uncertainty is delaying project awards, but once trade agreements and supply chain stabilization are achieved, Fluor expects a significant acceleration in domestic capital investment, especially in sectors like manufacturing, data centers, power, mining, and life sciences; this should positively impact revenue growth and future backlog.
  
• Increasing investment in renewable infrastructure, carbon capture, hydrogen, and advanced nuclear (including NuScale technology and LNG Canada Phase 2) will expand Fluor's addressable market and backlog, positioning the company for higher long-term revenue and improved earnings visibility.
  
• Public policy tailwinds, such as recently passed pro-growth legislation in the U.S., are expected to drive increased infrastructure modernization and domestic project activity, supporting higher future revenues and potentially better project mix as new, higher-margin contracts are awarded.
  
• The shift toward more reimbursable work (80% of backlog) and services-based contracts, as highlighted in recent large awards, reduces risk of cost overruns, improves earnings stability, and supports gradual net margin expansion over time.
  
• Operational discipline, improved project execution oversight, and active recovery of cost overruns (e.g., pursuing claims against subcontractors on legacy infrastructure projects) should support margin improvement, reduced volatility, and better cash flow as legacy fixed-price project issues are resolved.

Fluor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fluor's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 25.4% today to 2.6% in 3 years time.
• Analysts expect earnings to reach $511.6 million (and earnings per share of $3.13) by about August 2028, down from $4.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $420.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.8x on those 2028 earnings, up from 1.7x today. This future PE is lower than the current PE for the US Construction industry at 33.4x.
• Analysts expect the number of shares outstanding to decline by 5.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.55%, as per the Simply Wall St company report.

Fluor Future Earnings Per Share Growth

Risks

• Persistent delays and client hesitancy in releasing new EPC/commercial projects due to global trade uncertainty, cost escalation, and unstable tariff environments could continue to impact Fluor's backlog growth and revenue visibility, prolonging a subdued bookings environment into 2026.
  
• Ongoing challenges on legacy infrastructure projects-including escalating costs from labor productivity, subcontractor defaults, and materials inflation-have resulted in continued project write-downs and operational inefficiency, directly squeezing segment margins and increasing earnings volatility.
  
• Weakness or slowdown in key regional markets (e.g., Mexico), driven by political transitions, delayed payments, and restructuring activities, is impacting both profit contribution and operating cash flow at a time when other positive catalysts are also being pushed out.
  
• Exposure to fixed-price or lump sum contracts (as seen with certain energy projects and future LNGC Phase 2 negotiations) presents continued risk of cost overruns and margin pressure, especially if supply chain and execution risks are not fully controlled or contract terms are unfavorable.
  
• Extended delays or challenges in monetizing key strategic investments (such as NuScale shares) due to market conditions or a lack of interested buyers could limit expected capital returns, cash flow generation, and the company's flexibility to fund buybacks or new growth initiatives.

Valuation

• The analysts have a consensus price target of $49.889 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 $57.0, and the most bearish reporting a price target of just $40.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $19.6 billion, earnings will come to $511.6 million, and it would be trading on a PE ratio of 16.8x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $43.91, the analyst price target of $49.89 is 12.0% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.