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Zacks Industry Rank Analysis Highlights: ENGlobal, Fluor,
Foster Wheeler, Jacobs Engineering and PowerShares Dynamic Building &
Construction Portfolio
CHICAGO--(BUSINESS
WIRE)--Zacks.com releases the latest Zacks Industry Rank. Stocks featured in
this week’s analysis includes ENGlobal (Nasdaq:
ENG), Fluor (NYSE: FLR), Foster Wheeler (Nasdaq: FWLT), Jacobs
Engineering (NYSE: JEC) and PowerShares Dynamic Building &
Construction Portfolio (AMEX: PKB). To see the Zacks Industry Rank and the
trend in earnings estimates revisions for more than 200 industry groups, visit
http://at.zacks.com/?id=3154.
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior
Market Analyst for Zacks.com.
This week: An Alternative to Investing in Oil Stocks
Key Points:
- Engineering and consulting firms are an
alternative way to get exposure to the energy sector.
- A heavy reliance on revenues from oil companies
provides upside, while a diversified list of customers in other industries
lessens risk.
- Analysts have recently raised forecasts on
several engineering and consulting firms.
Last week, I discussed how the decline in oil prices was causing analysts to
lower their forecasts on exploration and production (E&P) stocks.
An alternative for investors looking to keep some exposure to the energy
sector are engineering and consulting firms. These are companies that provide
maintenance, construction and project management services to the energy sector.
They are less sensitive to the price of oil than E&P companies, but still
benefit from elevated oil prices.
The key for firms such as Fluor (NYSE: FLR) and Jacobs
Engineering (NYSE: JEC) is that oil stays at a high enough level to justify
spending on maintenance and expansion. Assuming that oil falls no lower than $70
per barrel, a prospect I believe is unlikely, oil companies should continue to
pursue capital improvement projects.
Adding a margin of safety is exposure to other business sectors. FLR has
industrial, power generation and government clients. JEC has pharmaceutical,
construction and government clients. Oil and gas account for the largest
proportion of revenues for both companies, however.
Most importantly, FLR is a Zacks #1 Rank ("strong buy") stock and JEC is a
Zacks #2 Rank ("buy") stock.
Fluor Beats, Raises Guidance
FLR surpassed second-quarter expectations by 7 cents with adjusted earnings
of 87 cents per share. (The company had earned 53 cents per share a year prior.)
Oil and gas revenues surged 56% to $3.3 billion. FLR also realized exceptional
growth in its power segment, where revenues rose 86% to $522 million.
Chief Financial Officer Mike Steuert believes the positive business momentum
will continue throughout the remainder of the year. He expects full-year profits
to total between $3.65 and $3.80 per share, a 25-cent increase over previous
guidance.
The majority of covering analysts adjusted their forecasts in response,
pushing the consensus earnings estimate 31 cents higher to $3.59 per share.
A Bullish Report From Jacobs Engineering
JEC issued a five-cent earnings surprise. Fiscal third-quarter profits
totaled 87 cents per share, versus 61 cents a year prior.
Revenues reached $2.9 billion, a 40% increase. The growth was driven by
downstream (e.g. refining) projects. The company also saw strong demand for
upstream projects, though they accounted for a much smaller portion of total
revenues.
Citing a record backlog, CFO John Prosser, Jr. raised his fiscal 2008 profit
forecast to between $3.15 and $3.40 per share. All 11 covering brokerage
analysts adjusted their projections in response, pushing the consensus earnings
estimate 11 cents higher to $3.35 per share.
Notably all of the covering analysts also raised their fiscal 2009
projections. The new consensus earnings estimate of $4.14 is 23 cents above the
average forecast of a month ago.
Industry Groups
FLR is classified in Engineering/R&D Services (http://at.zacks.com/?id=4783) and JEC is classified in
Building-Heavy Construction (http://at.zacks.com/?id=4784).
ENGlobal (Nasdaq: ENG), like JEC, is classified in Engineering/R&D
Services and has exposure to the energy sector. Following this company's bullish
earnings report earlier this month, both of the covering brokerage analysts have
raised their full-year forecasts. The consensus earnings estimate of 85 cents
per share is 21 cents above the average forecast of a month ago.
Another Building-Heavy Construction company with exposure to the energy
sector is Foster Wheeler (Nasdaq: FWLT). FWLT exceeded second-quarter
expectations by 17 cents with profits of 98 cents per share. The majority of the
covering brokerage analysts have raised their forecasts following the report,
pushing the consensus earnings estimate 16 cents higher to $3.69 per share.
Related ETFs
There is not a pure-play ETF for these types of companies. The closest might
be PowerShares Dynamic Building & Construction Portfolio (AMEX: PKB),
which holds positions in both FLR and JEC. However, the ETF is designed to cover
the broad building and construction sector and not just companies that provide
capital project services for energy companies.
The interactive Zacks Industry Rank List allows you to see all of the
companies, and their Zacks Rank, within more than 200 industries. See the list
at http://at.zacks.com/?id=3208.
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