A run-up in Fluor Corp.’s stock could have some in Orange County longing for the engineering services company to come back.
Once one of the largest companies based here, Fluor moved its headquarters from Aliso Viejo to Irving, Texas, last spring.
Fluor, which Wall Street expects to do nearly $17 billion in sales this year, still has a big local presence with about 1,800 people in Aliso Viejo, Irvine and Long Beach.
Fluor has won a windfall of contracts recently for work on power plants, oil refineries and other projects. Its stock has jumped, doubling to $160 last week since the start of the year. Fluor’s market value was $14 billion last week.
Fluor has been in the right place at the right time. Engineering and construction companies are in the midst of a high period of oil and gas, industrial and infrastructure and power spending, analysts say.
Competitors on Wall Street are surging too.
ABB Ltd. of Switzerland also has doubled on Wall Street in the past year with a recent market value of $60 billion. McDermott International Inc. of Houston is up about 150% during the same period with a recent market value of $13 billion.
Bechtel Corp., which generates about $20 billion in yearly revenue and employs about 40,000 workers, is Fluor’s closest competitor. But the San Francisco-based company is privately held.
Fueling interest in Fluor are recent deals including a contract it won in August for the construction of two nuclear power reactors in South Texas for Toshiba Corp. Terms of the deal weren’t disclosed. Citigroup analysts estimate the contract at $1.6 billion.
In September, Fluor landed a $1 billion contract to provide engineering, design, procurement and construction-management work for a polysilicon power plant for LDK Solar Co. in China.
That same month, Russian oil company Tatneft OAO said it selected Fluor to provide consulting, engineering and procurement and construction management services for a refinery complex in southern Russia.
Fluor’s services for the project could account for 15% to 20% of the overall $5 billion contract, Citigroup analysts estimated.
Also in September, Fluor was awarded a contract by Desert Rock Energy Co. to provide design and construction management services for a 1,500 megawatt power plant in New Mexico. Terms for the deal were undisclosed.
Some analysts say Fluor’s stock has reached it’s peak.
Last month, analysts Richard Paget of Morgan Joseph & Co. and Brian Chin of Citigroup Inc. downgraded Fluor’s stock from “buy” to “hold.”
Paget had upgraded Fluor’s stock to “buy” in August. His downgrade is strictly based on valuation, he said. Paget said he stills sees a positive, long-term outlook for Fluor and the entire engineering and construction sector.
“(Fluor) shares have surpassed our price target and we believe investors should use this opportunity to take profits,” Paget wrote in a recent report.
Citigroup’s Chin upgraded Fluor’s stock in March but recently downgraded it because he doesn’t see its current value continuing to bring a higher rate of return, even with the prospect of it getting more business, he said.
“Although Fluor has won a series of large contracts recently, we are downgrading the stock,” Chin wrote in a recent report. “We continue to believe Fluor’s gas-fired power plant expertise is a distinguishing factor in the upcoming power cycle but at Fluor’s current valuation we do not see enough upside potential in the stock to maintain a buy rating.”
Some risks facing Fluor include cost overruns, getting projects done on time, contract cancellations and a downturn in spending on oil facilities, power plants and other big projects, according to Chin.
In August, the Orange County Performing Arts Center filed a $30 million lawsuit against Fluor and others citing unexpected cost overruns, delays and design problems at the $240 million Ren & #233;e and Henry Segerstrom Concert Hall in Costa Mesa.
Fluor could experience lower profit margins or losses if costs are higher than expected when completing its contracts. A backlog of contracts could hurt the company if they’re canceled or delayed, Chin said.
“Fluor’s in a good position right now but it just seems that its valuation has gotten ahead of itself,” Paget said.
