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What's in Store for Fluor (FLR) this Earnings Season?

Fluor CorporationFLR is expected to report fourth-quarter 2016 results, after the closing bell on Feb 16.

In the last quarter, the company had surprised investors with a remarkable beat of 29.9%, marking an end to its hat-trick of misses. The company's three misses dragged its average surprise down to a negative of 3.9%, over the past four quarters.

Let's see how things are shaping up for this announcement.

Factors to Consider

A sneak peek into Fluor's preliminary fourth-quarter 2016 results, which was released last week, will likely reinstate investors' confidence in the stock. The company now projects adjusted earnings per share to come in at 82 cents per share, which is ahead of our expectations. We believe that the company's restructuring initiatives, industry-leading franchise within the U.S., diligent management and a proven business model are its key strengths, which will likely supplement its fourth-quarter results.

In addition, Fluor's lucrative award wins in Government and Infrastructure, are anticipated to act as primary growth drivers for the to-be-reported quarter. Moreover, the company's restructuring initiatives, under its construction and fabrication operations, implemented over the past few months, are expected to drive the fourth-quarter results. This apart, potential for margin upside from new awards looks impressive.

Fluor has a solid track record of receiving awards, and during the third quarter, new awards were up 32.1% to $7.0 billion on a year-over-year basis. Also, during fourth-quarter 2016, the company clinched a $1.2-billion engineering, procurement, construction and construction management contract from Denmark-based pharmaceutical behemoth, Novo Nordisk. Overall, we believe that robust investments in infrastructure and hints of higher government spending in this space post the presidential election, will stoke growth for the fourth quarter and beyond.

However, sluggish backlog conversion problem has been a persistent crisis in this sector, mainly attributable to uncertain macroeconomic conditions. This implies that the company's backlog level cannot be regarded as a reliable indicator of earnings growth. Precipitous decline in the prices of crude oil and certain metals has affected the ability of clients to fund new projects. The volatility in commodity prices is estimated to impact Fluor's multiple segments, including Energy, Chemicals, Mining and Maintenance Modification Asset Integrity segments.

We believe that lower commodity prices and consequent cautious investment decisions on the part of clients may result in tepid top-line performance in the quarter to be reported. Also, lower prices offered by the clients, combined with increased level of irrational bidding in feed pricing, may affect the company's performance for the upcoming quarter. This apart, ongoing consolidation across all firms in the engineering and construction sector, currency headwinds and tough competition may act as spoilsport for the soon-to-be-reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Fluor will beat earnings in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of -7.60% for Fluor, as the Most Accurate estimate is pegged at 73 cents, while the consensus estimate is pegged higher at 79 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Fluor Corporation Price and EPS Surprise

Fluor Corporation Price and EPS Surprise | Fluor Corporation Quote

Zacks Rank:Fluor 's Zacks Rank #3, when combined with a negative ESP, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Fairmount Santrol Holdings Inc. FMSA has an Earnings ESP of +11.11% and a Zacks Rank #2.

Milacron Holdings Corp. MCRN has an Earnings ESP of +11.43% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Cinemark Holdings Inc. CNK has an Earnings ESP of +2.38% and a Zacks Rank #3.

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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.


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

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