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Fluor (FLR) Receives a Position in DoS' DiPSS Program

Zacks Equity Research

Fluor Corporation FLR has received a position in the U.S. Department of State’s (DoS) Diplomatic Platform Support Services (DiPSS) program. Precisely, Fluor is among the 11 awardees on the DiPSS indefinite-delivery/indefinite-quantity (IDIQ) contracts.

Each IDIQ contract has an initial one-year ordering period and options for four additional one-year periods. The contracts, which are worth a combined value of up to $6 billion, require the awardees to provide a full range of services for Life Support Services, Logistics Services (LSS&L), and Operations and Maintenance (O&M) services, to DoS and other U.S. Government agencies, under Chief of Mission Authority and, under special circumstances, non-Chief of Mission activities across the globe.

Contract Wins to Bolster Government Business

Fluor has been providing mission critical services to the U.S. government and commercial clients for years around the globe. It has a solid track record of receiving awards, which help in generating higher revenues.

The company’s Government segment, accounting for 19% of total revenues, has been performing well, courtesy of a solid track record of contracts. Over the last few quarters, major wins in the government business allowed Fluor to expand long-term recurring revenue opportunities.

That said, revenues in the Government business suffered in first-quarter 2019, decreasing 41% year over year. Also, operating margin decreased 150 basis points, primarily due to the absence of restoration project and expenses related to NuScale.

Nonetheless, the said business received new awards of $331 million in the quarter, significantly higher than the year-ago level of $43 million. Quarter-end backlog was $4.2 billion compared with $2.4 billion a year ago. Solid backlog level will aid the company to generate higher revenues in the near term.

Share Price Performance

Shares of Fluor, a Zacks Rank #3 (Hold) company, have underperformed the industry year to date. Its shares have declined 7.3% against the industry’s growth of 18.9% in the said time frame. The company has been facing reduced volume of project execution activities for several downstream projects and a large upstream project. Also, it has been facing issues associated with the completion of a large chemicals project. Cancellation of a large operation and maintenance project in North America, and reduced levels of project execution activities for several power projects also added to the woes.

Yet, management believes that the company’s solid track record of receiving awards is expected to drive growth. At the end of the first quarter, consolidated backlog was $39.3 billion, up 35.1% from $30.9 billion in the comparable year-ago period. New awards recorded an increase of 34% from the prior-year quarter to $3.4 billion.

Key Picks

Some better-ranked stocks in the Zacks Construction sector include AECOM ACM, Quanta Services, Inc. PWR and Altair Engineering Inc. ALTR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AECOM has a solid earnings surprise history, having surpassed the consensus mark in all the trailing four quarters, with the average being 6.2%.

Quanta Services and Altair Engineering’s earnings for the current year are expected to increase 29.5% and 53.7%, respectively.

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