This Stock Is a Buy for the Long Term Even After Its Recent Rally

One of the largest global providers of engineering, procurement, construction, fabrication, operations, and maintenance services, Fluor is on the mend. Management has spent the past several years strengthening the balance sheet, derisking the backlog, pursuing a more diversified revenue mix, and generating stronger cash flows. The shares are up nearly 50% since bottoming in early April. Fluor lands on Morningstar analysts’ second-quarter list of 33 Undervalued Stocks to Buy. It’s also among Morningstar chief US market strategist Dave Sekera’s 5 Stocks to Buy to Profit From Trump’s Trade Deals.

Fluor serves a wide range of end markets, including oil and gas, chemicals, mining, and transportation. Its integrated solutions capability differentiates it from many of its engineering and construction rivals. The company owns and operates fabrication yards in China and Mexico, and its fabrication and modular construction capabilities allow it to complete parts of large projects off-site and ship them in modules. This gives Fluor flexibility and more control over costs when working in areas with scarce and expensive local labor. Furthermore, it allows the company to work on projects in remote areas where inclement weather or limited space would otherwise pose challenges. Fluor’s risk-mitigation strategy includes a shift toward direct-hire construction (which reduces reliance on subcontractors) and enhanced data analytics.

Key Morningstar Metrics for Fluor

• Fair Value Estimate: $52
• Star Rating: 4 Stars
• Economic Moat Rating: None
• Uncertainty Rating: High

Economic Moat Rating

We believe that most engineering and construction companies lack economic moats, as intense competition, significant customer power, and the relatively standardized nature of most projects hamper moat creation. Overall, while Fluor has a strong competitive position in certain end markets, it has to contend with high cyclicality as well as event risk (such as legal disputes and cost overruns), which could be caused by a number of factors, including labor shortages, subcontractor performance, and inclement weather. These factors have historically made it difficult for Fluor to maintain consistently attractive returns on invested capital throughout the economic cycle.

Read more about Fluor’s moat rating.

Fair Value Estimate for Fluor Stock

Our $52 fair value estimate reflects our slightly more muted near-term revenue growth and operating margin projections amid tariff-related uncertainty. We forecast roughly 6.5% compound annual revenue growth through 2029, driven by opportunities in infrastructure, mining, and energy. We expect Fluor to continue winning its fair share of awards in its government business. In the long run, we believe the company will benefit from increased infrastructure spending, which will be necessary to replace aging infrastructure in the US. We assume a midcycle margin of roughly 3.5%. We use a 10% weighted average cost of capital and a 26% long-run effective tax rate in our model.

Read more about Fluor’s fair value estimate.

Risk and Uncertainty

Fixed-price contracts accounted for roughly 21% of Fluor’s backlog as of December 2024. The company has experienced significant cost overruns on these projects in recent years and could experience more. The company’s energy solutions business (roughly 34% of 2024 sales) is subject to strong cyclicality. As volatility in crude oil, natural gas, and other commodity prices can cause customers to defer or even terminate projects, Fluor faces a high level of uncertainty in those business lines. Prolonged weakness in commodity prices could significantly depress demand for some of the company’s services. Fluor also faces significant event risk, which could lead to large losses on individual projects.

Read more about Fluor’s risk and uncertainty.

Fluor Bulls Say

• Fluor has a favorable reputation and strong record of delivering complex megaprojects, for which bidding tends to be less competitive.
• Fluor has a solid balance sheet, with roughly $2.8 billion in cash as of December 2024.
• Fluor has invested in small modular nuclear reactor technology that could have meaningful upside in the long run.

Fluor Bears Say

• Volatility in oil, natural gas, and other commodity prices could lead Fluor’s customers to delay or even cancel projects.
• Legacy fixed-price projects will remain a drag on cash flows in 2025.
• Some customers remain hesitant to embrace the integrated solutions model.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of May 28, 2025.