Highlights From E & C Fieldtrip
No Drought Of Demand In Texas
7 pages, Download link: sendspace.com
We had the opportunity to meet with the Executive Management teams of
Fluor, McDermott, KBR, Chicago, Bridge, & Iron and Quanta Services.
Takeaways are provided below:
Oil & Gas-No Evidence Of Slowdown: With regards to oil and gas, there is
still an enormous amount of award activity anticipated by year end and
beyond. Some E&C companies have the potential to double backlog from
here. In particular, optimism was sited across large LNG projects, followed
by deep and shallow water construction, the oil sands, and last some
refining/petrochemical work. There are no reports of award push-outs,
cancellations or change in customer spending patterns.
Power Transmission Pricing Red Hot: With regards to large transmission
power awards, the market has tightened significantly and some contractors
are out of capacity. PWR noted on large transmission bids, the number of
competitors in some instances has been cut in half. Margins have improved
in backlog and should continue. And despite good awards to date, PWR
sees backlog growing into 2012 growth driven by AEP, BC Hydro and more
on Gateway. The gas pipeline is also incrementally better as permitting
issues are finally eased.
Competitive Pressures Continue But Appear To Have Bottomed. With
regards to margins in oil and gas, while they have bottomed there is still a lot
of capacity out there. We don’t see material improvement in “as-sold”
margins until 2013 whereas originally we were hoping you could see it in
2012. Koreans still have capacity. However, we do believe margins could get
a lift on greater close out opportunities in 2012 and better utilization as
revenues ramp.
Top Picks: Within E&C, we are sticking with FLR given diversification,
quality of mgmt, and record backlog at $40B. We see continued award
strength in oil and gas as well as mining. In terms of higher beta names, our
top picks are CBI and MDR given exposure to oil & gas and visibility related
to backlog levels. In particular, we believe MDR is largely over sold at these
levels after an overreaction to second quarter results. We believe there is
opportunity for margin expansion and healthy bookings. For CBI, we
believe it is one of the few names where backlog could double based on
their positioning in LNG. On the power side, we favor PWR given award
outlook and opportunity for margin upside in 2012 given capacity constraints
on the power transmission side. |
