We recently upgraded construction and engineering services company, Foster Wheeler AG (FWLT) to Neutral based on its improved prospects. Foster Wheeler, which focuses on the oil and gas sector, oil refining, chemical/petrochemical, pharmaceutical, environmental, and power plant operation and maintenance sectors worldwide, became a Zacks Rank #3 (Hold) stock, shortly after it won a number of contracts during the last few months and earnings expected to go up in the near future.
Why the Upgrade?
Foster Wheeler’s basic operations are focused on the energy sector. Under the current global scenario, demand for energy is expected to continue to grow over the long term with its clients steadily investing in new and upgraded capacity to meet that demand.
In this regard, Foster Wheeler was successful in booking contracts for front-end engineering work, which is frequently the precursor to subsequent significant work for engineering, procurement and construction. During the last few months, a number of contracts have poured into Foster Wheeler’s net, the most recent being the FEED contract in Russia from OJSC Gazpromneft Moscow Refinery.
Foster Wheeler is witnessing a growing need for capacity additions in a number of developing countries. There is often a preference for solid fuel boilers in these countries. The company’s CFB technology continues to be its preferred solid fuel technology when a client has a hard-to-burn fuel or needs flexibility in fuel type.
Foster Wheeler’s businesses are neither seasonal nor are they dependent on a limited group of clients. The company’s representative clients include state-owned and multinational oil and gas companies, major petrochemical, chemical, and pharmaceutical companies, national and independent electric power generation companies, and government agencies throughout the world.
The majority of Foster Wheeler’s revenues and new business originate outside of the United States. Asia offers the largest number of near and intermediate term prospects for solid fuel generation. The other bright spot for potential demand is the Middle East.
This region is showing real promise as a potential market for solid fuel power generation, specifically in the opportunity to burn petroleum coke and in some cases, coal. Foster Wheeler is an undisputed market leader in solid fuel flexibility which provides it the competitive advantage in parts of the world that value and need this kind of power generation.
Other Stocks to Consider
Besides Foster Wheeler, other stocks in the Construction sector that are currently performing well include Michael Baker Corporation (BKR) with a Zacks Rank #1 (Strong Buy), while Harris & Harris Group, Inc. (TINY) and Willdan Group, Inc. (WLDN) have a Zacks Rank #2 (Buy) each.
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