FWLT (MM)

We recently maintained a Neutral recommendation on Zug Switzerland-based Foster Wheeler AG (FWLT).

Operating through two segments, the Global Engineering and Construction Group (Global E&C Group), the company serves the following industries: Oil and Gas; Oil Refining; Chemical & Petrochemical; Pharmaceutical; Environmental; Power Generation; and Power Plant Operation and Maintenance.

We believe that world demand for energy will continue to grow over the long term and clients will continue to invest in new and upgraded capacity to meet that demand. In that regard, Foster Wheeler was successful in booking contracts for front-end engineering work, which is frequently the precursor to subsequent significant work for engineering, procurement and construction.

The company recently came out with its second-quarter financial results and reported earnings per share from continuing operations of $0.53 compared with $0.48 in the prior-year quarter. The company outperformed the Zacks Consensus Estimate of $0.35.

The company’s net income for the quarter increased sharply by 17% year over year led by impressive results in Global Power Group. New order in the segment increased $574 million compared to with $162 million in the prior-year period.

However, revenue and new orders in the Global E&C Group declined during the quarter due to lower volume of work executed and lower-than-expected new awards.

The company expects Global E&C Group scope revenue to increase in the second half of 2011 but remain flat for full-year 2011 compared with 2010. Backlog at the end of 2011 is expected to be more than 2010. For 2011, the segment EBITDA margin is expected in the range of 13%–15%. Global Power Group scope revenue is expected to be up sharply in 2011 versus 2010. The segment EBITDA margin on scope revenue in 2011 increased to a range of 17%–19%.

However, worldwide operations involve risks that may limit or disrupt operations, limit repatriation of cash, increase taxation or otherwise materially adversely affect its business, financial condition, results of operations and cash flows. The company faces competition from Fluor Corporation (FLR) and Jacobs Engineering Group Inc. (JEC).

Thus, we expect the company to perform in line with the market and hence maintained a Neutral recommendation.

 
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