Buy or Sell Fluor Stock? Opinions Vary
It’s been said that Wall Street analysts may not always be right, but they are never in doubt.
For instance, ask three of them what you should do with Fluor Corp. stock and you will get three different answers.
William Siedenburg of Smith Barney, Harris Upham & Co. recommends selling. Richard Rossi of Merrill Lynch, Pierce, Fenner & Smith advises “aggressive” investors to buy more. And Deborah Thielsch of First Boston Corp. is telling her clients to hold.
Fluor, traded on the New York Stock Exchange, has been falling steadily in recent months. It hit a 12-month low of $11.125 a share last week before rebounding modestly to close Friday at $12.25.
Although the three analysts disagree about what investors ought to do with Fluor stock, they do agree that the issue’s continued weakness stems largely from the fact that the hoped-for recovery in Fluor’s engineering and construction business has failed to materialize. Indeed, at the end of the third quarter, Fluor’s backlog actually fell 9% to $4.57 billion, from $5.04 billion for that period a year earlier.
The three analysts also agree that Fluor will report another loss for its fiscal 1986, which ended Oct. 31. But it doesn’t take a crystal ball--or an analyst, for that matter--to figure that out. Fluor had a net losses of $3.9 million for the first nine months. Last month, Fluor said it would post a $27-million fourth-quarter loss from the sale of its offshore drilling operation at a deep discount to its book value.
The only question, then, is how much of a loss will Fluor report.
Siedenburg projects a net loss of 29 cents a share, or $23 million, based on Fluor’s 79.3 million shares currently outstanding. Thielsch expects a net loss of about 34 cents a share, or $27 million. Rossi estimates a loss of at least 50 cents a share, or $39.7 million.
But when it comes to what is likely to happen in 1987, the analysts again part company.
Rossi expects continued cost-cutting at Fluor’s engineering and construction group to make it profitable by the second half of next year. The company, he said, should post a “modest” profit for 1987.
By contrast, Siedenburg said in his report that although Fluor has accomplished some restructuring, there should be no “dynamic improvement in profits over the next year or so.” He estimates a 1987 loss of 25 cents a share, or about $20 million.
Thielsch, seemingly always in the middle, estimates the company will perform in the range of breaking even to a loss of 25 cents a share.
Fluor stock is likely to face continuing price weakness in the near term because of year-end tax-loss selling. The value of Fluor stock should increase over the next 18 to 24 months as the company returns to real profitability, Rossi believes.
“On that basis we think the stock should be accumulated by aggressive accounts with patience,” he said. “At these prices, it’s well worth taking a look at as a turnaround opportunity.”
Siedenburg, who recommended that investors buy Fluor earlier this year at $17 a share and later at $14 a share, said that because of his bearish outlook for 1987 and beyond, “funds invested in Fluor could be used more profitably elsewhere.”
As far as Thielsch is concerned, earnings are what will drive Fluor’s stock price, so there isn’t any great need to buy now. “You won’t see too much upside in that stock until they report a profit, which won’t be before the second half of next year,” she said.
