Foster Wheeler Stays Neutral - Analyst Blog


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On Nov 28, we maintained our Neutral recommendation on Foster Wheeler AG ( FWLT ) based on our concerns about the company's moderate third-quarter earnings performance.

The company is expected to benefit from growing demand for energy, and clients will continue to invest in new and upgraded capacity to meet that demand. However, we are concerned about the company's power segment, which has been witnessing declining revenues due to lower orders.

Why the Reiteration?

On Nov 8, Foster Wheeler posted an 8.8% year-over-year decrease in earnings per share to 52 cents in the third quarter of 2013. However, the results exceeded the Zacks Consensus Estimate by 23.8%.

Consolidated operating revenues in the quarter were $801 million, down 0.6% year over year. Strong growth in the Global Engineering and Construction group was fully offset by a steep decline in the Global Power group. Revenues were well below the Zacks Consensus Estimate of $879 million.   

Following the release of the third-quarter results, the Zacks Consensus Estimate for fiscal 2013 increased 1.8% to $1.62 per share. Moreover, the Zacks Consensus Estimate for fiscal 2014 declined 1.5% to $1.98 per share.

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 this 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.

Further, Foster Wheeler is witnessing an increasing need for capacity additions in a number of developing countries. There is often a preference for solid fuel boilers in these countries.

The company's circulating Fluidized-Bed (CFB) steam generator technology continues to be its preferred solid fuel technology when a client has a hard-to-burn fuel or needs flexibility in fuel type. Foster Wheeler is an undisputed market leader in solid fuel flexibility, which provides it the competitive advantage in parts of the world that value and need this kind of power generation.

However, the demand for the products and services of the Global Power Group was negatively impacted during the quarter due to lack of boiler orders. Therefore, new orders (measured in terms of future revenues) received by the segment in the second quarter of 2013 was also significantly lower by 26% to $199 million compared with $268 million in the year-ago quarter.

Similarly, new orders in the segment were down 22.0% year over year to $89 million from $114 million. The decline was attributable to slippage of award dates for committed key prospects, which resulted in a lack of boiler orders. Foster expects the decline to continue through 2013 for the Global Power Group.

Currently, Foster retains a Zacks Rank #3 (Hold). However, some better-ranked energy and utility stocks include VSE Corp . ( VSEC ), AO Smith Corp. ( AOS ) and EnerSys ( ENS ). All these stocks carry a Zacks Rank #1 (Strong Buy).

SMITH (AO) CORP (AOS): Free Stock Analysis Report

ENERSYS INC (ENS): Free Stock Analysis Report

FOSTER WHELR AG (FWLT): Free Stock Analysis Report

VSE CORP (VSEC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
More Headlines for: AOS , ENS , FWLT , VSEC

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