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:
- 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.
- The stock is selling near the bottom of its five year valuation range based on P/S, P/CF and P/B.
- The company has a robust balance sheet with over $600 million in net cash on its books (approximately 25% of current market capitalization).
- 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.