Shares of Fluor (NYSE: FLR) declined 37.7% in 2018, according to data from S&P Global Market Intelligence. It was a disappointing year for the company, and it comes after Fluor entered last year with high hopes of a significant upturn in its revenue and earnings.
Fluor's exposure to heavy industries such as chemicals, energy, mining, power, and industrial infrastructure make it a cyclical play on the long-anticipated recovery in capital spending from the oil and gas and mining industries. As such, the stock entered 2018 with high hopes, and the ongoing recovery in energy and mining & metals prices continued in the first half of the year.
Indeed the company saw a good recovery in new award wins, and its backlog started to grow again sequentially for the first time since 2016.
Data source: Fluor Corporation. Chart by author.
So what went wrong?
Fluor's two big problems in 2018
First, Fluor's stock suffered from the company's poor execution, which caused management to slash its full-year 2018 guidance from $3.10-$4.50 at the start of the year to $1.80-$1.90 by the third quarter. The problems relate to charges on a downstream project in Europe and a gas-fired power plant in Florida.
Image source: Getty Images.
The opportunity with Fluor's stock lies in the possibility that momentum in its end markets will continue and the company's execution will improve in 2019. If so, there's considerable upside potential in the stock. On the other hand, there's no guarantee that commodity prices will improve and Fluor's execution issues mean it can't be regarded as a failsafe way to play the commodity-investing theme.
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