Fluor Corp (FLR)

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Selling at Fluor Goes Through the Roof
By TERESA RIVAS

Tables: Buyers | Sellers

WITH FLUOR OUTPERFORMING heavy-construction peers and announcing a number of new contracts, insiders at the company have decided to unload a substantial amount of stock.

Since the beginning of the month, five executives have sold more than $4 million in stock, both directly and through options exercises.

On March 6, Chief Financial Officer Michael Steuert sold 10,000 shares for $1.4 million, an average of $144.79 a share. He continues to own 32,302 shares.

On March 7, Senior Vice President Steven Gilbert exercised 3,285 shares for $288,304, an average of $86.81 a share. He sold 10,186 shares for $1.4 million, an average of $140.57 per share. He continues to own 20,029 shares.

On March 6, group executive Jeffrey Faulk exercised 693 shares for $58,358, or $84.21 a share. He sold 4,643 for $650,020, or $140 a share. He continues to own 10,700 shares.

On March 4, group executive John Hopkins sold 4,414 shares for $611,403, an average of $138.44 a share. He continues to own 22,371 shares.

On March 4, director Peter Watson sold 559 shares for $80,988, or $144.88 a share. He continues to own 2,780 shares.

Options exercised by Gilbert and Faulk would have expired at 2016, at the earliest.

All the executives own less than 1% of Fluor stock outstanding.

A spokesman for Irving, Texas-based Fluor declined to comment on the transactions.

"There is certainly more troubling selling [at other companies] than what is going on at Fluor," says Jonathan Moreland, adviser to Ladenburg Thalmann Asset Management on insider strategies. "This stock has rebounded nicely from its near-term bottom in February, which makes the sales look like normal profit-taking."

"This stock is well positioned, but if you're getting in now you have to be betting that it will come in at the high of its earnings-estimate range, because it looks pretty fairly valued by consensus," he says.

Although Fluor has fallen from highs of more than $170 in October, it has kept pace with the Dow Jones U.S. Heavy Construction Index's 57% rise over the past 12 months.

On Wednesday Fluor fell $2.93 to $138.73.

In the new year the stock has posted smaller losses than its peers as it announced a spate of new contracts and posted a robust fourth quarter.

On Feb. 28, Fluor reported that income more than tripled in the fourth quarter on a tax settlement and strong profits in the oil and gas industry. The company said earnings rose to $259.5 million, or $2.82 a share, compared with $80.7 million, or 90 cents a share, a year earlier.

Fluor also boosted its full-year guidance, bumping its 2008 earnings-per-share forecast up by 20 cents a share to $5.10 to $5.50. Analysts' mean estimate was $5.43 a share.

Fluor, which counts coal, oil and nuclear energy markets among its main businesses, has benefited from both rising energy prices and growing interest in nuclear power as an alternative to conventional energy sources.

"Fluor's strong performance and record-setting backlog in the fourth quarter bolsters our conviction in the story," wrote Citi Investment Research analyst Brian Chin in a research report Thursday. "We continue to believe management guidance seems conservative given the robust growth in backlog, and expect that this will lead to upside surprises, particularly in the second half of the year."

Chin upgraded Fluor to Buy from Hold and increased his target price to $190.50 to $158.

The insiders' sales came as Fluor announced two new projects it had taken on.

On March 5, the Mexican construction company Empresas ICA announced that its joint-venture with Fluor, ICA Fluor, won a $100 million contract to build a nitrogen injection plant and power plant for a unit of Sempra Energy.

On Monday Fluor said it had won a contract valued at $1.9 billion to work on Total's Port Arthur, Texas, refinery.

On Feb. 26, Fluor said it was awarded a project-management contract for a significant portion of Repsol's refinery expansion in Cartagena, Spain. Fluor had booked the contract's $1.3 billion value into its fourth-quarter backlog.

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Don't Walk All Over Fluor
Fluor (FLR: NYSE)
By UBS Investment Research ($121.26, Feb. 15, 2008)

WE ARE UPGRADING Fluor to Buy [from Neutral], reflecting a more attractive valuation, favorable positioning in international and oil and gas markets, as well as some visibility into potential bookings over the next year. The stock has pulled back 28% from its 52-week high on broad macro concerns, and we believe this pullback to a multiple consistent with the range earlier in the cycle provides a favorable entry point, given the continued growth in Fluor's end-markets.

We are reducing our price target to $153 per share, from $165, mainly to reflect a lower market multiple. We apply a 65% premium to the market multiple on our estimate of 2009 earnings, plus $5 per share of cash on the balance sheet.

We believe backlog growth and oil prices are the two most important factors to Fluor's stock. We believe recent bookings of front-end engineering and design projects are leading indicators of and offer some visibility into bookings of future major engineering, procurement and construction (EPC) contracts.

We prefer international and oil and gas exposure, relative to domestic non-energy exposure. At least two-thirds of Fluor's business is oil/gas/power/mining. Roughly 60% of Fluor's backlog at Sept. 30, 2007, was non-U.S., and we believe international energy driven markets are likely to remain favorable for the foreseeable future.


Using calendar year-end stock prices, Fluor outperformed the market in the 1990 recession year, but underperformed in 1991 and 2002. Macro concerns remain a key risk. We note that Fluor outperformed the S&P 500 in the recession year of 1990 (7%) but underperformed in 1991 (down 7%), while slightly underperforming (down 2%) in 2002 (performance calculated using Dec. 31 over Dec. 31 comparison).

We believe the first level of risk for Fluor from slowing economic growth or recession relates to falling commodity prices, particularly oil. At this point, UBS analysts forecast oil in 2008 to decline to $86 per barrel for Brent and $85 for West Texas Intermediate crude, roughly 5%-10% below current levels. While we believe a decline in oil prices could weaken the stock, we do not believe the fundamental project outlook would change noticeably with oil at these levels. Nevertheless, while the stock has pulled back, it is still trading above historical averages, and could weaken in a tough market.

While UBS is calling for recession in the U.S. in the first two quarters of 2008 (down 1% and down 1.5%, in the first and second quarters, respectively), our economists assume a brief and mild recession. Globally, UBS expects gross-domestic-product growth to slow to 3.6% in 2008, from 4.9% in 2007. Notably, GDP growth in China and India is still expected to be 9.9% and 8.2%, respectively. In 2009, global GDP growth is expected to pick up again, to 3.8%, from 3.6% in 2008.

While the market has declined 14% from its 52-week high, Fluor's stock has declined roughly 28%. We believe the underperformance may be attributable to market concerns regarding macroeconomic weakness, which could eventually affect Fluor both directly (less demand for industrial, government and power projects) and indirectly (weaker oil prices, which could threaten spending by oil companies).

However, at this point, we expect oil prices to remain at a sufficiently elevated level to support healthy capital spending in Fluor's major oil and gas end-markets. We also believe Fluor's international exposure position it well for growth despite slowing domestic economic growth.

-- Steven Fisher, CFA
-- Brandon Verblow

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Fluor correcting. Next target is lower Bollinger Band provided it doesn't bounce off the 21-day SMA...