Balanced Risk-Reward for Foster Wheeler - Analyst Blog
April 11 2014 - 10:00AM
Zacks
On April 10, 2014, we issued an
updated research report on Foster Wheeler AG
(FWLT). In the recent past, the company’s business has been
benefiting from its proposed acquisition by AMEC plc, initiatives
taken to improve its fundamentals and continued contract wins.
Foster Wheeler signed a definitive sell-off agreement on Feb 13,
with a U.K.-based company, AMEC plc. The stock has been on uptrend
since then, gaining nearly 32% to date.
Foster Wheeler is witnessing a growing need for capacity additions
in a number of developing countries. The alliance with AMEC will
lead to an expansion of production capacity while increasing
efficiency across the vertical supply-chain.
Foster Wheeler has recently received a number of contracts for
front-end engineering work and subsequent significant work for
engineering, procurement and construction. The trend is likely to
continue as the company expects the global demand for electrical
energy to increase and solid-fuel-fired steam generators to play a
significant role in meeting the energy demand. Moreover,
clients are expected to continue investing in new and advanced
technology to meet the rising demand for energy.
Moreover, the company is focused on strengthening its business and
gaining market share through strategic acquisitions to enrich its
product portfolio. As part of its endeavors, in March, the company
announced that it would be taking over South Africa-based mining
company, MDM Engineering Group Ltd. for approximately $109 million
and Siemens Environmental Systems and Services business from
Siemens Energy, Inc. for an undisclosed amount.
However, several market constraints impacted the company’s top and
bottom lines in its fourth-quarter 2013 results. These factors
include short-term sluggishness in the power generation segment
across the globe, changing environmental regulations in Europe and
low natural gas prices in many regions that delayed the retrofit
markets. Moreover, the price of natural gas is expected to be on
decline for as many as three to five years ahead, owing to the
increasing availability of the gas.
The company is also exposed to severe risks due to its
acquisitions.Though acquisitions are expected to add to the
company’s growth, there are significant integration risks. The
company’s proposed acquisition by AMEC plc. is likely to close in
the second half of 2014, which may drag its results in the near
term.
Also, the projects included in the company’s backlog are usually
long-cycle projects which may also be delayed or cancelled, thereby
impacting Foster Wheeler’s operations and cash flows.
Stocks That Warrant a Look
At present, Foster Wheeler has a Zacks Rank #3 (Hold). However,
some better-ranked players in the engineering and heavy industry
that are worth a look include Pernix Group Inc
(PRXG), Quanta Services, Inc. (PWR) and
VESC Corp. (VSEC). While Pernix Group sports a
Zacks Rank #1 (Strong Buy), Quanta Services and VESC havea Zacks
Rank #2 (Buy).
FOSTER WHELR AG (FWLT): Free Stock Analysis Report
PERNIX GROUP (PRXG): Get Free Report
QUANTA SERVICES (PWR): Free Stock Analysis Report
VSE CORP (VSEC): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Pernix (CE) (USOTC:PRXG)
Historical Stock Chart
From Jun 2024 to Jul 2024
Pernix (CE) (USOTC:PRXG)
Historical Stock Chart
From Jul 2023 to Jul 2024