Fluor Corporation Quarterly Valuation – July 2014 $FLR

220px-Logo_FLUOR.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies to Research for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Fluor Corporation (FLR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Fluor Corporation (Fluor) is a holding company. It is a professional services company providing engineering, procurement, construction and maintenance, as well as project management services on a global basis. Fluor serves a diverse set of industries worldwide, including oil and gas, chemicals and petrochemicals, transportation, mining and metals, power, life sciences and manufacturing. It is also a primary service provider to the United Services federal government. Fluor operates in five principal segments: Oil & Gas, Industrial & Infrastructure, Government, Global Services and Power. Fluor Constructors International, Inc., which is organized and operates separately from the rest of its business, provides management and construction services in the United States and Canada, both independently and as a subcontractor on projects in each of its segments. In November 2011, it acquired a sulfur technology company, Goar, Allison & Associates, a unit of Air Products.
FLR Chart

FLR data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $76.02
MG Value $50.66
MG Opinion Overvalued
Value Based on 3% Growth $51.09
Value Based on 0% Growth $29.95
Market Implied Growth Rate 6.54%
Net Current Asset Value (NCAV) $8.25
PEmg 21.58
Current Ratio 1.79
PB Ratio 3.28

Balance Sheet – 3/31/2014

Current Assets $5,614,800,000
Current Liabilities $3,144,800,000
Total Debt $496,700,000
Total Assets $7,991,900,000
Intangible Assets $0
Total Liabilities $4,301,200,000
Outstanding Shares 159,300,000

Earnings Per Share

2014 (estimate) $3.94
2013 $4.06
2012 $2.71
2011 $3.40
2010 $1.98
2009 $3.79
2008 $3.93
2007 $2.93
2006 $1.48
2005 $1.31
2004 $1.13

Earnings Per Share – ModernGraham

2014 (estimate) $3.52
2013 $3.27
2012 $2.97
2011 $3.14
2010 $2.95
2009 $3.18

Dividend History

FLR Dividend Chart

FLR Dividend data by YCharts


Fluor qualifies for the Enterprising Investor but not the Defensive Investor, who has concerns with the low current ratio and the high PEmg and PB ratios at this time.  The company passes all of the Enterprising Investor’s requirements, though.  As a result, Enterprising Investors  following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Jacobs Engineering Group (JEC).  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.95 in 2010 to only an estimated $3.52 for 2014. This level of demonstrated growth does not support the market’s implied estimate of 6.54% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Fluor Corporation (FLR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Fluor Corporation (FLR) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.