Thursday, March 6, 2008

Flour (FLR) and McDermott (MDR) Get Upgrades

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Where's the love for Foster Wheeler (FWLT)? :) Instead Fluor (FLR) and McDermott (MDR) get upgrades today (for all the same reasons I think FWLT is a pound the table buy with a 6-12 month horizon). Well no complaints as these are quite sizeable price target increases. I am still a bit surprised that the infrastructure group is lagging - the same global growth macro issues that are helping commodities should be helping these companies; I still believe investors are stuck in the belief they are reliant on US growth instead of understanding their new place in the world order.
  • An analyst upgraded two engineering and construction companies Thursday, based in part on expectations for strong performance in the oil and gas sectors. Citi Investment Research analyst Brian Chin upgraded Fluor Corp. and McDermott International Inc. to "Buy" from "Hold."
  • He moved Irving, Texas-based Fluor's price target to $190.50 from $158, and Houston-based McDermott's target to $78.50 from $64.
  • Fluor's strong fourth-quarter performance and "record-setting" backlog "bolsters our conviction," Chin said in a client note. Chin raised his 2008 earnings estimate to $5.90 per share from $5.67 per share, and said the company's own outlook appears "conservative." Analysts polled by Thomson Financial expect, on average, earnings of $5.62 for the period.
  • On McDermott, Chin raised his 2008 earnings estimate to $2.86 per share. Analysts expect $3.04 per share earnings for the period. McDermott is likely the sole bidder on a $1.7 billion contract for Qatar Petroleum's Barzan gas field development, and the project is expected to be awarded sometime in the first half of the year, he said.
  • Fluor and McDermott shares, as well as others in the sector, have been hurt year to date by recessionary fears and concern that commodity prices will drop, leading to a slowdown in energy infrastructure spending, he said. "However, unless forward commodity prices materially soften, all practical solutions to higher global commodity prices involve infrastructure spending in our view, making Fluor" and its peers a good investment position, he said. (Bingo! Well, I will keep an eye out on this analyst since he seems to have some sense, which puts him in an elite group among analysts as a whole)

Long all 3 names in fund; long Foster Wheeler in personal account


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