Fluor (FLR): Evaluating Valuation After Securing New Defense Threat Reduction Agency Contract Opportunity

Fluor (FLR) just made headlines after snagging a coveted spot as one of six firms chosen for the Cooperative Threat Reduction Integrating Contract IV with the U.S. Defense Threat Reduction Agency. This deal gives Fluor a seat at the table for up to $3.5 billion in potential task orders over the next decade, deepening its access to large-scale government projects in a sector that values reliability and specialized expertise. For investors, this trigger is more than just routine contract news. It puts the spotlight on Fluor’s ability to land meaningful work in the expanding defense and security space.

The contract win comes at an interesting time. Fluor’s shares have seen only a modest bump following the announcement, even as the company pushes deeper into defense and continues to win other contracts in both government and private markets. Over the past year, the stock’s performance has lagged, with a negative total return, offset in part by strong compound returns over longer periods. Recently, momentum has faded. Yet Fluor’s diversified project wins, such as its role in engineering for next-generation energy plants and logistics support for U.S. Army operations, suggest it is not standing still.

So with new government contract opportunities on deck and the share price still subdued, is this a value play waiting to rebound, or are investors right to remain cautious about future growth?

Most Popular Narrative: 17.8% Undervalued

The prevailing view is that Fluor is undervalued by nearly 18 percent, with a consensus analyst price target notably higher than the current market price. This narrative is built around specific assumptions for future earnings, margins, and revenue growth.

The company's new strategy focusing on cash generation and earnings growth is likely to improve net margins and enhance earnings. Expansion into strategic markets, coupled with project completions and acquisitions, is expected to increase revenue and enhance shareholder value.

Want to peek behind the curtain of this bullish outlook? The key to this narrative is a major shift in how much profit the company is expected to generate, paired with a bold future earnings multiple. This is not what you might expect from a traditional engineering firm. Curious what dramatic forecasts and margin moves analysts believe will power the next phase? Stay tuned to discover the numbers fueling this surprisingly optimistic valuation.

Result: Fair Value of $49.89 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, currency swings and delays in large project decisions could quickly test the optimism in even the most positive outlook for Fluor’s near-term growth.

Find out about the key risks to this Fluor narrative.

Another View: What Does the DCF Model Suggest?

Now, let’s take Fluor’s valuation through the lens of the SWS DCF model. This approach, focused on projected cash flows, also indicates the stock is trading below its fair value. But can both methods be right? Perhaps the true picture lies in the details behind the forecasts.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Fluor for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Fluor Narrative

If you see things differently or enjoy digging into the details, you can shape your own take in just a few minutes. Do it your way.

A great starting point for your Fluor research is our analysis highlighting 4 key rewards and 2 important warning signs that could impact your investment decision.

Looking for more investment ideas?

Step up your investing game with three dynamic ways to grow your portfolio on Simply Wall Street. Don’t let the next big opportunity pass you by.

• Enhance your search for stocks with unstoppable earnings momentum; tap into undervalued stocks based on cash flows to reveal hidden gems trading below their true potential.
• Uncover tomorrow’s breakthroughs in healthcare innovation by checking out healthcare AI stocks, where artificial intelligence is transforming how care is delivered and managed.
• Jump ahead of the trend with game-changing digital assets; the world of cryptocurrency and blockchain stocks puts the future of finance at your fingertips.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com