Record New Orders And Growing Backlog Make Foster Wheeler A Buy

| About: Amec Foster (AMFW)

Heavy construction is one of the sectors I am starting to overweight in my portfolio, as the stocks have cheap valuations and commercial development is starting to improve. One stock I hold, Foster Wheeler (FWLT), has good exposure to large energy projects worldwide as well. The company posted a solid earnings report this morning, and it looks like the stock is heading higher given its growing backlog and record new orders.

Key earnings report highlights for Foster Wheeler:

  • Foster Wheeler reported earnings of 56 cents a share, 12 cents better than estimates.
  • The company had record new orders in its Global E&C (Engineering & Construction) Group. It also had a 31% sequential-quarter increase in scope backlog to $1.7 billion.
  • For the first nine months of 2012, net income was $1.20 per diluted share, compared $1.01 per diluted share for the first nine months of 2011.
  • The company repurchased $40 million in shares during the quarter, and still has $460 million left on its stock buyback authorization.

Foster Wheeler is an engineering and construction contractor and power generating equipment supplier worldwide.

4 additional reasons FWLT has upside from just over $23 a share:

  1. The 14 analysts that cover the stock have a $29.50 a share median price target on the stock, some 30% above the current stock price. I would look for some price targets to be raised on the back of this solid earnings report.
  2. The stock is selling near the bottom of its five year valuation range based on P/S, P/CF and P/B.
  3. The company has a robust balance sheet with over $600 million in net cash on its books (approximately 25% of current market capitalization).
  4. FWLT is cheap on a growth basis with a five year projected PEG of under 1 (.69) and just over 11x forward earnings.

Disclosure: I am long FWLT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.