Construction sector stocks have performed well in the past six months, with the sector gaining 16.7% on average, more than double the S&P 500’s gain of 8.1%. We believe growth-conducive policies of the government and expectations of higher infrastructure spending drove the shares’ performance.
Within the sector, the engineering and R&D services space has gained 15.8% in the same time frame, also outperforming the broader market comfortably.
We shall focus on this space, particularly on a comparative analysis of three companies in the industry – Fluor Corporation FLR , Quanta Services, Inc. PWR and AECOM ACM . The industry currently carries a Zacks Industry Rank of 70 (Top 26% in more than 250 industries).
Beginning with share price performance, Fluor rose 4.9% over the last six months. Fluor compares badly to Quanta Services as well as AECOM, which have charted an impressive trajectory of late, appreciating 20.8% and 14.2% during the same time frame. While AECOM still lags the industry’s average return of 15.8%, Quanta Services has soared past that as well.
Fluor has outperformed the Zacks Consensus Estimate in three out of the last four quarters, with an average earnings beat of 6.3%, while AECOM has managed to meet earnings estimates twice for as many beats. Quanta Services, however, has missed earnings estimates thrice, for an average negative surprise of 2.8% over the trailing four quarters.
Recent Quarterly Performance
In the last reported quarter, all three companies witnessed revenue growth. Fluor’s revenue growth of 3.7% year over year helped it beat on the bottom line, driven by increased project execution activities for certain downstream, and mining and metal projects and several large multi-year decommissioning and cleanup projects.
Quanta Services’ top line surged an impressive 27.8% year over year in its last quarterly report. Robust revenues generation at the Oil and Gas Infrastructure as well as Electric Power Infrastructure Services segments acted as the primary catalyst.
AECOM’s revenues grew 12.3% year over year, driven primarily by Building Construction and Power business, and improvement in Oil & Gas business.
Estimate Trend & Analyst Outlook
For 2017, Fluor has witnessed four upward estimate revisions in the last 30 days, which led to the Zacks Consensus Estimate rising 6.1% to $1.56. This signifies decidedly bullish analyst sentiment for the stock.
On the other hand, Quanta Services’ Zacks Consensus Estimate for 2017 has seen five downward estimate revisions and fell 2% over the last month to $1.97, underlining bearish analyst outlook. Analysts are not favouring AECOM either, as its Zacks Consensus Estimate has moved south from $2.75 to $2.66 over the last month, a fall of 3.3%.
For the next year, we anticipate Fluor earnings to grow a whopping 46.4%, while Quanta Services’ and AECOM’s growth expectations are pegged at 23.7% and 10.5%, respectively.
Fluor’s stock is currently trading at a trailing-12-month P/E multiple of 17.4, which is cheaper than the industry’s P/E of 18. Quanta Services’ P/E is 19.8, while that of AECOM is 12.8. So we see that in terms of trailing-twelve-months P/E ratio, AECOM is the cheapest, while Fluor is also trading at a discount to the industry.
Since none of these engineering heavyweights are standing out particularly, let us review them using our VGM Score . This score allows investors to eliminate the negative aspects of stocks and pick the winners.
Fluor and AECOM currently boast a VGM Score of A, while that of Quanta Services is F.
Even though the three companies carry the same Zacks Rank #3 (Hold), Fluor leads in terms of expected earnings growth, earnings surprise trend and estimate revisions. Its valuation is decent, and a top VGM Score further tilts the scales in favour of Fluor.
A better-ranked stock in the same space is KBR, Inc. KBR , holding a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
KBR has beaten estimates twice in the trailing four quarters. In the last reported quarter, the company surpassed estimates by 16.7%.
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Quanta Services, Inc. (PWR): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.