Fluor Corp. (FLR) Poised to Beat Q1 Earnings: Here's Why

Fluor Corporation FLR is set to report first-quarter 2016 results, after the closing bell on May 5.

The company has had a disappointing earnings history registering positive earnings surprise in just one out of the last four quarters, resulting in a negative average surprise of 6.6%.

In spite of the lackluster earnings history, we expect Flour to beat estimates in the to-be-reported quarter.

Why a Likely Positive Surprise?

Our proven model shows that Fluor is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.33%. This is a very meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Fluor carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 have a significantly higher chance of beating earnings estimates. Meanwhile, Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

The combination of Fluor's Zacks Rank #3 and ESP of +2.33% makes us confident of an earnings beat in the upcoming report.

Growth Factors This Past Quarter

Fluor, a well managed company with a proven business model, happens to derive much of its strength from its impressive market diversity that helps it mitigate serious cyclicality of markets in which it operates. This apart, the company's strong financial health, diligent restructuring initiatives and strong foothold in the U.S. engineering and construction sector are expected to be conducive to first-quarter 2016 results.

The recent uptick in the activities of oil & gas customers of the company has provided the much needed momentum to the company's LNG business which is expected to boost top and bottom-line performance in the to-be reported quarter. This apart, Fluor has largely pursued strategic alliances in the past to boost its market share and inorganic revenue growth. In this regard, the recently completed buyout of Dutch engineering and construction company Stork Holding B.V has piqued investors' interest as this is expected to boost the company's Global Services sales.

Moreover, Fluor's solid track record of winning awards has proved to be a major driver of revenues and margins. Also, the company's strong backlog levels hint at the continuation of this trend in the first quarter as well. Some of the noteworthy contracts clinched by Fluor-led joint ventures during the first quarter of 2016 include a design-build and project maintenance deal from Arizona Department of Transportation (ADOT) and design-build, finance, operate and maintenance award from Maryland Department of Transportation and Maryland Transit Administration for the Purple Line project.

Also, Fluor's industry-leading position in the nuclear remediation at government facilities throughout the U.S. is expected to pose a major tailwind to its first-quarter 2016 performance. During the first quarter of 2016, the company was also selected by the U.S. Department of Energy (DOE) to support cleanup mission initiatives at the Idaho Site under the Idaho Cleanup Project (ICP) Core Contract. The long-term contract spanning over a period of five years is valued at $1.4 billion. Moreover, nuclear project wins from Westinghouse earlier this year and an uptick in transportation spending in the U.S. over the past few months are expected to propel growth in the to-be reported quarter.  

Despite these potent growth drivers, lower commodity prices and the subsequent uncertainty in consumer spending along with strengthening of the U.S. dollar raise caution.

Stocks That Warrant a Look

Here are some companies which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

SPX FLOW, Inc. FLOW has an Earnings ESP of +50.0% and a Zacks Rank #2. The company is expected to report first-quarter 2016 results on May 4, before market opens.

AECOM ACM has an Earnings ESP of +4.17% and a Zacks Rank #3. The company is scheduled to report second-quarter fiscal 2016 results on May 10, after the closing bell.

Cinemark Holdings, Inc. CNK has an Earnings ESP of +2.13% and a Zacks Rank #2. The company is slated to report first-quarter 2016 results on May 10, before the market opens.

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