Fluor's Financial Turnaround: Analyst Anticipates Cash Boosts And Revenue CAGR Of 9% Through 2025

UBS analyst Steven Fisher upgraded Fluor Corporation FLR to Buy from Neutral, raising the price target to $47 from $35.

The analyst writes that the company is at an inflection point, with legacy risk concerns being addressed and a return to normalized margins anticipated. 

Fisher expects a 41% growth in adjusted EBITDA from 2023 to 2025, driven by a 160 bps expansion in segment margin. 

According to the analyst, cash flow adds further upside, with favorable resolutions in negotiations, non-core asset divestment, and other cash-supportive actions potentially adding ~$5 per share of cash to the balance sheet.

Fisher points out that Fluor's pipeline of prospects/projects is stronger than in recent years, supported by a robust opportunity set in various sectors. 

The backlog is now 64% cost reimbursable, up from 45% in Q4 2020, and new awards in Q2 had margins 200bps higher than its total backlog margin. 

The analyst anticipates revenues to grow at a 9% CAGR for 2022-25 and segment margins to expand by 160bps.

The analyst highlights that Fluor is optimistic about reaching a negotiated agreement on the Gordie Howe project, which could result in lower total outflows than expected. 

There is also potential cash upside from plans to monetize stakes in NuScale and Stork UK/LATAM and bring off-balance sheet cash onto the balance sheet from LNG Canada and its Mexico ICA Fluor JV.

Fluor's adjusted EBITDA is forecasted to grow from $565 million in 2023 to $795 million in 2025, the analyst adds. 

EPS estimates for 2023-25 have been raised to reflect higher earnings growth potential. 

Price Action: FLR shares closed higher by 2.43% to $35.46 on Wednesday. 

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.