This Stock Can Boost Your Portfolio's Infrastructure

Marshall is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

One of the great infrastructure plays now appears to be on sale. Fluor's (NYSE: FLR) stock has been pushed down over 6.5% during the past week, and despite the rebound in the U.S. economy, Fluor is still grossly under-performing the S&P 500.

Things should change going forward. In what appears to be a robustly competitive engineering and construction market, Fluor is the market leader, with nearly three times the revenue of any major peer.

The diversity  

Fluor has five key segments that give it impressive revenue diversity and market reach. Its top segment is oil and gas, where it offers a range of design, engineering and construction services for upstream and downstream oil and gas production markets. 

Its other key market includes the industrial and infrastructure segment, which offers engineering and construction services for new construction and refurbishment markets.

The government-group segment provides engineering and construction operations to the U.S. government, focusing on the Department of Energy, the Department of Homeland Security and the Department of Defense. 

The global services segment integrates a variety of customized service capabilities that assist industrial clients in improving the performance of their plants and facilities. This overall diversity helps Fluor achieve consistent results and generate solid cash flow. 

Robust growth

Some key highlights of late for Fluor include its robust backlog and recent awards. New awards were up to $27.1 billion in 2012 from the $26.9 billion in 2011, with its backlog coming in at $38 billion for the end of 2012. In May, Fluor was awarded a contract by Dow Chemical for engineering and constructing a propane dehydrogenation unit and ethane cracker. What's more is that over 50% of Fluor's backlog is in the robust oil and gas industry.

One of Fluor's favorite peers is Jacobs Engineering (NYSE: JEC). Jacobs offers engineering and construction services. Jacobs posted fiscal 2Q EPS of $0.80 compared to $0.65 for the same quarter last year. Results were below the $0.82 consensus. Backlog was up some 11% last quarter year-over-year, and revenue is expected to be up in the high single digits for 2012.

However, there will be headwinds related to weakness in Jacobs' metals and mining segment due to soft demand in China and Australia. The balance sheet, however, appears to be somewhat solid, with cash of $1.1 billion compared to debt of $450 million. Much like Fluor, Jacobs should manage to perform fairly well with the tailwinds in the oil and gas infrastructure sector. 

URS (NYSE: URS) is another key infrastructure bet, as a worldwide provider of architectural and engineering services. URS posted 1Q results that were less than impressive. EPS was $0.96 compared to $1.12 for the same period last year and backlog fell 4% sequentially. Also, from a balance sheet standpoint, URS has cash of only $250 million while long-term debt is upwards of $2 billion. 

However, revenue is expected to be up 9% this year due to strength in the energy markets, namely oil and gas. But, what remains is a big headwind for the smaller engineering service companies. Fluor, with its superior balance sheet, can start and run projects prior to receiving payment. This gives the company a distinct advantage over other companies that require timely payments. 

Hedgie trade

Going into the second quarter, Fluor had the most hedge fund interest among major peers, with 32 hedge funds long the stock. This was a 14% increase from the previous quarter and includes Impala Asset Management with the largest position, worth $51 million (see Impala's top picks).

Meanwhile, Jacobs had the lowest interest among the three, with 16 hedge funds long the stock, a 24% decrease from the first quarter. Kerr Neilson's Platinum Asset Management had the most valuable position in the stock, accounting for 4.9% of its total 13F portfolio (check out Platinum's high yielders).

URS had 19 hedge funds long the stock, where Glenview Capital had the largest position worth $215 million (see Glenview's top picks).

Bottom line

Fluor does appear to be expensive. The stock trades at 21.2 times earnings and 0.3 times sales, while URS is at 11.5 times earnings and 0.3 times sales, and Jacobs 15.3 times earnings and 1.0 times sales. 

It's no surprise that Fluor commands a premium multiple. It serves multiple markets and various industries. Even with this premium valuation, Fluor still has a low PEG ratio of 1.2 that makes it a growth at a reasonable-price opportunity. I prefer Fluor to either Jacobs or URS. 

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Marshall Hargrave has no position in any stocks mentioned. The Motley Fool owns shares of Fluor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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