Fluor

Fluor's second-quarter adjusted earnings per share of $0.91 easily beat the $0.70 FactSet consensus estimate, sending shares up roughly 17% following the earnings release. Second-quarter revenue was up 9% year over year.

Why it matters: We think the highlight of the quarter was the $6.1 billion in new awards. We believe the company is well positioned to capitalize on future growth opportunities across multiple end markets, including data centers, power, chemicals, mining, and life sciences. Fluor ended the quarter with a $26.9 billion backlog, up 5% from the prior-year period. Given a robust pipeline, we expect Fluor's backlog to continue to grow heading into 2027. The backlog is 85% reimbursable, which we believe meaningfully reduces the risk of material cost overruns on fixed-price contracts.

The bottom line: We've raised our fair value estimate for no-moat-rated Fluor to $50 per share from $44, driven by our more optimistic revenue growth projections and the time value of money. Management updated its full-year adjusted EBITDA guidance range to $500 million-$525 million from $525 million-$560 million, which reflects the sale of Fluor's joint venture in Mexico.

Big picture: Fluor completed the monetization of its remaining NuScale interest in April. The company ended the quarter with roughly $3 billion in cash and marketable securities, which we think will give management flexibility to deploy capital into share repurchases and acquisitions. The remaining legacy project backlog is down to only $119 million. Second-quarter results reflected a $44 million headwind from cost growth on the Gordie Howe International Bridge project, which has now been completed. Management expects only $94 million in future funding requirements on legacy projects.

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Following second-quarter results, we've raised our fair value estimate to $50 per share from $44, driven by our more optimistic revenue growth projections and the time value of money. For 2026 management anticipates adjusted EBITDA in the range of $500 million to $525 million.

We forecast roughly 6% compound annual revenue growth through 2030, driven by opportunities in infrastructure, data centers, mining, and energy. Additionally, we expect Fluor to continue winning its fair share of awards in its government business. In the long run, we believe Fluor will benefit from increased infrastructure spending, which will be necessary to replace aging infrastructure in the US.

We assume a midcycle margin of roughly 3%. We use a 9.5% weighted average cost of capital and a 26% long-run effective tax rate in our model.

We assign Fluor a no-moat rating. We believe that most engineering and construction firms lack moats, as intense competition, significant customer power, and the relatively standardized nature of most projects hamper economic moat creation. Furthermore, E&C firms have to contend with high cyclicality and event risk, such as legal disputes and cost overruns (which could be caused by a number of factors, including labor shortages, subcontractor performance, and inclement weather). As a result of a fragmented industry structure, high historical volatility, and the potential for large losses on individual projects, it is difficult for E&C firms to maintain consistently attractive returns on invested capital throughout the economic cycle.

Although we think that most E&C firms derive the bulk of their revenue from no-moat activities, the potential for moat creation exists in certain niche sectors. Fluor has an excellent reputation and a strong record of completing megaprojects, particularly in the energy and chemicals markets. Bidding tends to be less competitive for complex megaprojects such as offshore oil platforms, refineries, and ethylene crackers. Having a good reputation and strong performance history is imperative when bidding for such megaprojects, as they often require multibillion-dollar investments and are expected to operate around the clock for multiple decades. Since the cost of any disruptions or unscheduled downtime could far outweigh potential cost savings from choosing a lower bid, customers are more likely to weigh an E&C firm’s reputation and record when evaluating bids for such projects.

In recent years, Fluor has experienced massive cost overruns on fixed-price contracts, which typically carry higher margins but shift the risk of cost overruns to the E&C firm and create the possibility of large losses on individual projects. Management has significantly reduced the firm’s fixed-price exposure from 64% of the backlog in 2021 to less than 25% in 2024. We believe the move away from fixed-price contracts has significantly lowered the risk around Fluor’s backlog but not eliminated the possibility of material value destruction.

Overall, while Fluor has a strong competitive position in certain end markets, it has to contend with high cyclicality, significant customer power, and event risk (such as legal disputes and cost overruns), which could be caused by a number of factors, including labor shortages, subcontractor performance, and inclement weather. These factors have historically made it difficult for Fluor to maintain consistently attractive returns on invested capital throughout the economic cycle.

Fluor has a favorable reputation and strong record of delivering complex megaprojects, for which bidding tends to be less competitive.

Fluor has a solid balance sheet, with roughly $2.1 billion in cash as of December 2025.

Fluor has invested in NuScale small modular nuclear reactor technology that could have meaningful upside in the long run.

Fluor faces high uncertainty, as volatility in oil, natural gas, and other commodity prices could lead customers to delay or even cancel projects.

Legacy fixed-price projects will remain a drag on cash flows in 2026.

Some customers remain hesitant to embrace the integrated solutions model.