A company similar to KBR
Fluor Corporation (NEW) (NYSE:FLR), another E&C company, has also witnessed a similar rally of 25% in the last 12 months like KBR, Inc. (NYSE:KBR). Still the stock seems to be a cheap one given that it trades at a forward multiple of 12x, which well below the industry average of 14x.
As one of the higher quality names in the E&C space, Fluor Corporation (NEW) (NYSE:FLR) is best positioned to benefit from North American energy spend similar to the 2005 through 2008 cycle given exceptional customer relationships. Also, the mining discount will go away as oil and gas comprises a larger portion of the backlog. The mix of work toward areas like petrochemical and GTL should be favorable to overall margins as well.
Should you follow Warren Buffett in this context?
Recently, Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) reported a stake in Chicago Bridge & Iron Company N.V. (NYSE:CBI). The billionaire believes that the company is well positioned to benefit from the increasing investment into the natural-gas industry.
The company’s guidance for 2013 announced last December was a sheer reflection of the growth that the company is soon going to witness. The company raised both its earnings as well as revenue guidance, stating the shale revolution to be one of the main causes of top- and bottom-line improvement.
Just like KBR, Chicago Bridge & Iron Company N.V. (NYSE:CBI) has been able to win solid projects in all five fields of E&C related to the shale-gas boom. The company’s Dominion project on fractionation, William Geismar project on petrochemicals, Freeport project on LNG exports and Entergy’s Ninemile project on gas power show its strong position in the sector (not to mention its acquisition of SHAW Group, which has enabled it to improve its market share in nuclear maintenance-related work).
Goldman Sachs Group Inc (NYSE:GS) believes that the shale revolution will bring multi-billion dollar investments to the E&C industry. This means that almost every company in this space will benefit from this capital inflow. However, KBR, Inc. (NYSE:KBR), Chicago Bridge & Iron Company N.V. (NYSE:CBI) and Fluor Corporation (NEW) (NYSE:FLR) remain my top picks as shale-gas beneficiaries.
The article 3 Stocks to Buy in the Shale Boom originally appeared on Fool.com and is written by Zain Abbas.
Zain Abbas has no position in any stocks mentioned. The Motley Fool owns shares of Fluor. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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