Construction Stocks

Fluor Corporation Quarterly Valuation – May 2015

220px-Logo_FLUOR.svgFluor Corporation (NYSE:FLR) may initially attract many value investors due to the earnings growth in recent years. However, Benjamin Graham, the father of value investing, taught that looking at the price cannot be the sole factor in investment decisions as the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here’s an updated look at how the company fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using theModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

FLR Chart

FLR data by YCharts

[level-free]
To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
[/level-free]
[level-mg-stocks-screens-subscriber]

Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 5/7

  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 one-third over the last 10 years, using three-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) ratio – PEmg is less than 20 – PASS
  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 four of the following five 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 $60.56
MG Value $39.28
MG Opinion Overvalued
Value Based on 3% Growth $47.51
Value Based on 0% Growth $27.85
Market Implied Growth Rate 4.99%
Net Current Asset Value (NCAV) $4.31
PEmg 18.48
Current Ratio 1.73
PB Ratio 3.04

Balance Sheet – January 2015

Current Assets $5,758,000,000
Current Liabilities $3,331,000,000
Total Debt $992,000,000
Total Assets $8,194,000,000
Intangible Assets $113,000,000
Total Liabilities $5,084,000,000
Outstanding Shares 156,200,000

Earnings Per Share

2014 $3.20
2013 $4.06
2012 $2.71
2011 $3.40
2010 $1.98
2009 $3.75
2008 $3.93
2007 $2.93
2006 $1.48
2005 $1.31
2004 $1.13

Earnings Per Share – ModernGraham

2014 $3.28
2013 $3.27
2012 $2.97
2011 $3.13
2010 $2.94
2009 $3.17

Dividend History

FLR Dividend Chart

FLR Dividend data by YCharts

Conclusion

Fluor Corporation is suitable for the Enterprising Investor, but not for the more conservative Defensive Investor who is concerned about the low current ratio and the high PB ratios. The Enterprising Investor, on the other hand, has no initial concerns. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $2.94 in 2010 to $3.28 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 5% over the next 7-10 years. Therefore, the model returns an estimate of intrinsic value falling below the current price, indicating the company is overvalued at the present time.

[/level-mg-stocks-screens-subscriber]

Leave a Reply

Your email address will not be published.

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

Back To Top