Fluor Earnings: Strong Backlog and Prospect Pipeline Position Firm Well for Continued Growth

We’ve raised our fair value estimate for Fluor FLR to $37.50 from $36 after the engineering and construction firm reported solid third-quarter results and increased its full-year outlook for the second time this year. The fair value adjustment is driven by Fluor’s outperformance as well as time value of money.

Fluor’s third-quarter revenue increased by around 10% from the same period last year, fueled by strong 46% growth in urban solutions thanks to ramping activity on several recently awarded projects. Management raised its full-year guidance range and now anticipates adjusted EPS of $2.50-$2.70 (up from $2.00-$2.30) and adjusted EBITDA of around $600 million (at the top end of the previous $500 million-$600 million range). The company also reiterated its long-term targets of reaching $3.10-$3.60 in adjusted EPS and $800 million-$950 million in adjusted EBITDA by 2026.

We are pleased with the firm’s portfolio transformation and improved execution. Third-quarter new awards were 94% reimbursable, and management said on the earnings call that the margins on new awards are coming in around 70 basis points higher than in the existing backlog. The backlog is now 70% reimbursable, up from 58% in the prior-year period, and on pace to reach management’s goal of 75% by 2024.

The pipeline also remains healthy, as Fluor is tracking prospects that total around 15 times its current backlog. The strong pipeline reflects opportunities in chemicals, production, and fuels, as well as mining and metals. We are optimistic on the long-term outlook for Fluor, as we believe that its strong backlog and shift away from fixed-price contracts positions the firm well to continue driving solid revenue growth and operating margin expansion.