Fluor Begins Work on Rail Project - Analyst Blog

Fluor Corporation (FLR) announced the financial closure of the Eagle P3 commuter rail project (Eagle Project) in the Denver metropolitan area in Colorado.

Denver Transit Partners (DTP), a Fluor-managed team, arranged for $452 million private funds, including $397.8 million in bonds for the six-year design and build phase of the Eagle Project, followed by a 30-year period of operations and maintenance as part of a Build, Own and Operate contract.

The Eagle Project is a public-private initiative, which entails the building of 22.8 miles and 11.2 miles of commuter rail lines starting from Union Station to Denver International Airport and Wheat Ridge, respectively. It also involves constructing a two-mile portion of the Northwest Rail Corridor and a railway maintenance facility.

Fluor will share 50% of costs in the construction phase and will be entitled to 33% of net revenues in the operations phase. In addition, it will own a 10% stake in an SPV (Special Purpose Vehicle) that raised funding for the project.

Fluor stands out as one of the few engineering and construction companies that has the technological expertise, logistics, procurement capabilities and project management experience needed to execute on a large variety of projects, including large complex projects for a diverse group of industrial and government clients virtually anywhere in the world. 

Given its strong financial position, Fluor will have ample financial resources to pursue a niche acquisition program aimed at strengthening its considerable service breadth. The company is delivering solid results driven by its diversified business model and targeted new awards strategy.

Flour is one of the best-in-class E&C companies with a favorable contract mix, diverse service offerings, and strong relationships around the world, allowing it to sustain operating margin going forward relative to its peers without diminishing growth potential. Analysts, however, believe project wins in the next few quarters will be fraught with intense competition, raising concern for potential margins on any new awards. 

Given the breadth of Fluor's power experience from solid fuel to gas fired to nuclear and renewable solutions, we feel that it is extremely well positioned to capture significant market share as demand returns.

The Industrial & Infrastructure segment of the company provides design, engineering, procurement and construction services to the transportation, wind power, mining and metals, life sciences, telecommunications, manufacturing, commercial and institutional development, microelectronics and healthcare sectors. These projects often require state-of-the-art application of its clients' processes and intellectual knowledge.

Fluor Corporation serves a diverse set of industries worldwide including oil and gas, chemical and petrochemicals, transportation, mining and metals, power, life sciences and manufacturing. It is also a primary service provider to the U.S. federal government. It performs operations and maintenance activities for major industrial clients. In some cases, it operates and maintains their equipment fleet.

We currently have a Neutral recommendation on Fluor Corporation.