On Tuesday, Citi made an optimistic move on Fluor Corporation (NYSE:FLR), upgrading the stock from Neutral to Buy and increasing the price target to $65 from the previous $52. The revised price target is based on a 19x multiple of the new 2026 earnings per share (EPS) estimate of $3.40, up from the former 13x multiple of the 2025 EPS estimate of $3.45.
The upgrade reflects Citi's positive view on Fluor's evolving outlook and execution. Despite expectations of a gradual improvement, the firm acknowledges the significant growth in Fluor's backlog over recent quarters, highlighting a mid-20% year-over-year increase as of the second quarter of 2024. Additionally, Fluor has successfully reduced its legacy cash drag by over $200 million in 2024.
Citi anticipates that Fluor's book-to-bill ratio may fall below 1x in the upcoming quarters, which typically does not bode well for the stock. However, the firm expects this metric to rebound above 1x around the middle of 2025. In the interim, due to Fluor's enhanced execution and its relative valuation discount compared to the S&P 500—trading at 0.80x versus 1.08x—Citi believes the stock will perform well.
For the third quarter of 2024, Citi expects a solid earnings performance from Fluor, although it does not discount the possibility of modest disruptions from fixed price work. The firm also notes Fluor Management's positive outlook on a potential increase in bookings in 2025, driven by visibility in sectors such as Life Sciences, Mining, and Data Centers.
The recent approval of the Hanford Tank Waste Operations and Closure, LLC contract adds to over $5 billion in additional project scope for Fluor, which is not yet reflected in the company's revenue, further bolstering Citi's confidence in the stock's future performance.
In other recent news, Fluor Corporation has seen several notable developments. The company's earnings and revenue results have been strong, with Q2 2024 revenues reaching $4.2 billion and new awards totaling $3.1 billion, leading to a backlog primarily composed of reimbursable contracts valued at $32.3 billion. Fluor has also been involved in a significant joint venture, securing a $45 billion environmental management contract at the Hanford Site in Washington state.
Analyst firms have been active in their assessments of Fluor. Citi upgraded Fluor to Buy and increased the price target to $65, reflecting a positive outlook on the company's performance. KeyBanc Capital Markets maintained its Overweight rating and $57.00 price target on Fluor, citing confidence in the progress of Fluor's LNG Canada facility. DA Davidson raised Fluor's price target to $58.00, while Baird increased Fluor's price target to $54.00, both firms maintaining positive ratings on the stock.
InvestingPro Insights
Fluor Corporation's recent performance and future prospects align well with Citi's optimistic outlook. According to InvestingPro data, Fluor has demonstrated strong financial performance with a revenue of $15.74 billion in the last twelve months as of Q2 2024, representing a 4.86% growth. This growth trend supports Citi's positive view on the company's evolving outlook and execution.
InvestingPro Tips highlight that Fluor is expected to grow its net income this year, which aligns with Citi's expectations of improved performance. The company's strong return over the last month (14.13%) and impressive year-to-date price total return of 37.5% further reinforce the positive sentiment surrounding the stock.
It's worth noting that Fluor holds more cash than debt on its balance sheet, indicating financial stability. This solid financial position could support the company's ability to capitalize on growth opportunities in sectors like Life Sciences, Mining, and Data Centers, as mentioned in Citi's analysis.
For investors seeking more comprehensive insights, InvestingPro offers 11 additional tips for Fluor Corporation, providing a deeper understanding of the company's financial health and market position.
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