Market Overview

Fluor Will Benefit From Upcoming Capex Cycle, Bank Of America Says

Fluor Will Benefit From Upcoming Capex Cycle, Bank Of America Says

Fluor Corporation (NYSE: FLR) is in the "early innings" of a favorable capex cycle among energy and mining companies, according to Bank of America.

The Analyst

Bank of America's Anna Kaminskaya upgraded Fluor from Underperform to Buy with a price target lifted from $37 to $58.

The Thesis

Energy companies are exiting a multi-year long cycle characterized by declining capex spend and a focus on cash versus growth, Kaminskaya said in a note. In fact, energy companies may be seen in the "early innings" of what could be a "healthy spending cycle" in mining and oil & gas end markets. This bodes well for companies like Fluor that boasts a better track record of project delivery in the energy and mining sectors.

Meanwhile, the analyst's model of prior commodity cycles indicates Fluor's Oil & Gas profit is "closer to the trough," which implies there is room for significant earnings growth once new projects kick off in the coming three years. Fluor is among the few companies among the analyst's coverage with strong exposure to mining capex that should see a notable pick-up in large projects.

Based on a historical point of view, Kaminskaya said Fluor's stock multiple tends to expand at times when energy capex recovers.

Price Action

Shares of Fluor closed Wednesday at $45.42, up 1.7 percent.

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