An Attractive Long-term Opportunity in This Volatile Market
Mar 18, 2020 by InvestorDestination Team
The EPC player Fluor Coporation (NYSE: FLR) has struggled in recent years. 2019 was an extremely challenging year for the company. Now it has delayed its 10-K filing and announced an account probing from SEC. In Feb, when the market was at an all-time high, shares of Flour touched a new low. Now the global pandemic has rattled the market, and Fluor's stock is on a free fall.
In general, postponing 10-K filling and account probing screams a scandal; however, we believe this is not the case with Fluor. The probe will look into how the company recorded charges during the second quarter, and we believe it won't make a significant difference even if deficiencies were found.
To control the pandemic, many countries around the globe are imposing social distancing. As people are confined to their homes, economic activities, including project constructions, are coming to a screeching halt. EPC companies, including Fluor, will experience project delays and cost overrun in fixed projects. Due to the unprecedented crisis, Flour might be able to negotiate with customers but, most probably this year, it will experience cost overruns and losses.
Apart from project delays due to social distancing, a decline in the global economy will hurt EPC activities. It is hard to predict the timeline for when normalcy will resume. Until there is a vaccine for the virus, there will be a lot of uncertainties.
In general, EPC is a cyclical industry. But during the recent upturn, EPC, copper and energy industries didn't experience an upturn. Now, due to the global pandemic, a recession is a likely probability. Apart from that, oil prices are on a freefall due to production cut conflicts between the OPEC countries. Falling commodity prices will force the energy and mining companies to slash their capital spending further, which will negatively impact EPC players.
Now governments' top priority is to control the pandemic. Next is to control the economy from sliding into a deep recession. In the US, the Fed will pass monitory policies, and congress will pass a fiscal measure to revitalize the economy. Congress's fiscal policies might include a spending bill to upgrade the aging US infrastructure. The copper market will be depressed in the near-term. However, most industry experts are upbeat about the long-term copper outlook.
The current stock price of Fluor indicates that investors are not hopeful that the company will survive this downturn. During these unprecedented challenging times, companies with a strong balance sheet will have a higher likely hood of survival. Fluor has a strong balance sheet and a decent backlog. So we believe it will survive this downturn and it is an attractive investment opportunity.
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