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Fluor (FLR) to Report Q3 Earnings: What's in the Cards?

Premium engineering and construction firm, Fluor Corporation FLR is expected to report third-quarter 2017 results on Nov 2.

Last quarter, the company reported earnings of 72 cents, reflecting a beat of 22%. Overall, Fluor has a decent earnings surprise history, with an average positive surprise of 9.9% in the trailing four quarters.

Let's see how things are shaping up for this announcement.

Factors at Play

Fluor’s market diversity remains a key strength that helps it mitigate the cyclicality of markets in which it operates. The company’s strategy of maintaining a good business portfolio mix permits it to focus on the more stable business markets as well as capitalize on developing the cyclical markets at suitable times. The long-term prospects of the company also remain strong with existing growth opportunities in renewable energy, gas-fired combined cycle generation and air emissions compliance projects for existing coal-fired power plants.

The company is poised to grow on the back of its strong track record of receiving awards. The management remains optimistic about continuation of this trend in future as well, which is expected to prove conducive to bottom-line growth in the to-be reported quarter as well. The company continues to receive awards for FEED and pre-FEED work for gold, bauxite and copper projects. Based on the present trends, Fluor remains confident that it will secure two major EPC mining projects in the upcoming quarters.

Moreover, the company’s continuous focus on cost controls enables it deliver the performance requirements specified by its clients as well as their budgetary needs. Fluor’s current focus on transforming its EPC model into one integrated solution is likely to expand its scope of work on a project, improve client satisfaction and provide an opportunity to generate greater returns.

Despite these positives, the fact remains that the widespread macroeconomic challenges have severely restricted the company’s performance for the past several quarters. Sluggish backlog conversion problem has been a persistent crisis in this sector, mainly attributable to uncertain macroeconomic conditions. These conditions are likely to hinder growth to a large extent.

This apart, the company bears significant cost overruns risk as the price of several of its contracts is fixed. It may experience reduced profits if costs increase above its estimates, which might reflect poorly on the upcoming quarterly results.

Further, volatility in commodity prices and cyclical nature of the company’s commodity-based business lines, poses significant challenges for Fluor in the upcoming quarters. Other major headwinds include uncertain award timings, weak spending on the part of the clients, intense competition. Also, foreign currency volatility along with complex stick built and construction projects are likely to add to the company’s woes.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Fluor this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is +3.19% as the Most Accurate estimate is pegged higher than the Zacks Consensus Estimate of 58 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Fluor Corporation Price and EPS Surprise

Fluor Corporation Price and EPS Surprise | Fluor Corporation Quote

Zacks Rank: Fluor has a Zacks Rank #5 (Strong Sell), which makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

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

Louisiana-Pacific Corporation LPX has an Earnings ESP of +3.90% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

TRI Pointe Group, Inc. TPH has an Earnings ESP of +0.31% and a Zacks Rank #2.

Weyerhaeuser Company WY has an Earnings ESP of +7.14% and a Zacks Rank #2.

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