New book by Larry Connors Click here Improve your trading - See how
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
This week: An Alternative to Investing in Oil Stocks
Key Points:
-- Engineering and consulting firms are an alternative way to get exposure to the energy sector.
-- A heavy reliance on revenues from oil companies provides upside, while a diversified list of customers in other industries lessens risk.
-- Analysts have recently raised forecasts on several engineering and consulting firms.
Last week, I discussed how the decline in oil prices was causing analysts to lower their forecasts on exploration and production (E&P) stocks.
An alternative for investors looking to keep some exposure to the energy sector are engineering and consulting firms. These are companies that provide maintenance, construction and project management services to the energy sector.
They are less sensitive to the price of oil than E&P companies, but still benefit from elevated oil prices.
The key for firms such as Fluor (NYSE: FLR | Quote | Chart | News | PowerRating) and Jacobs Engineering (NYSE: JEC | Quote | Chart | News | PowerRating) is that oil stays at a high enough level to justify spending on maintenance and expansion. Assuming that oil falls no lower than $70 per barrel, a prospect I believe is unlikely, oil companies should continue to pursue capital improvement projects.
Adding a margin of safety is exposure to other business sectors. FLR has industrial, power generation and government clients. JEC has pharmaceutical, construction and government clients. Oil and gas account for the largest proportion of revenues for both companies, however.
Most importantly, FLR is a Zacks #1 Rank ("strong buy") stock and JEC is a Zacks #2 Rank ("buy") stock.
Fluor Beats, Raises Guidance
FLR surpassed second-quarter expectations by 7 cents with adjusted earnings of 87 cents per share. (The company had earned 53 cents per share a year prior.) Oil and gas revenues surged 56% to $3.3 billion. FLR also realized exceptional growth in its power segment, where revenues rose 86% to $522 million.
Chief Financial Officer Mike Steuert believes the positive business momentum will continue throughout the remainder of the year. He expects full-year profits to total between $3.65 and $3.80 per share, a 25-cent increase over previous guidance.
The majority of covering analysts adjusted their forecasts in response, pushing the consensus earnings estimate 31 cents higher to $3.59 per share.
A Bullish Report From Jacobs Engineering
JEC issued a five-cent earnings surprise. Fiscal third-quarter profits totaled 87 cents per share, versus 61 cents a year prior.
Revenues reached $2.9 billion, a 40% increase. The growth was driven by downstream (e.g. refining) projects. The company also saw strong demand for upstream projects, though they accounted for a much smaller portion of total revenues.
Citing a record backlog, CFO John Prosser, Jr. raised his fiscal 2008 profit forecast to between $3.15 and $3.40 per share. All 11 covering brokerage analysts adjusted their projections in response, pushing the consensus earnings estimate 11 cents higher to $3.35 per share.
Notably all of the covering analysts also raised their fiscal 2009 projections. The new consensus earnings estimate of $4.14 is 23 cents above the average forecast of a month ago.
Industry Groups
FLR is classified in Engineering/R&D Services (http://at.zacks.com/?id=4783) and JEC is classified in Building-Heavy Construction (http://at.zacks.com/?id=4784).
ENGlobal (Nasdaq: ENG), like JEC, is classified in Engineering/R&D Services and has exposure to the energy sector. Following this company's bullish earnings report earlier this month, both of the covering brokerage analysts have raised their full-year forecasts. The consensus earnings estimate of 85 cents per share is 21 cents above the average forecast of a month ago.
Another Building-Heavy Construction company with exposure to the energy sector is Foster Wheeler (Nasdaq: FWLT). FWLT exceeded second-quarter expectations by 17 cents with profits of 98 cents per share. The majority of the covering brokerage analysts have raised their forecasts following the report, pushing the consensus earnings estimate 16 cents higher to $3.69 per share.
Related ETFs
There is not a pure-play ETF for these types of companies. The closest might be PowerShares Dynamic Building & Construction Portfolio (AMEX: PKB), which holds positions in both FLR and JEC. However, the ETF is designed to cover the broad building and construction sector and not just companies that provide capital project services for energy companies.
The interactive Zacks Industry Rank List allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. See the list at http://at.zacks.com/?id=3208.
About Zacks Industry Rank and the Zacks Rank
Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 ("Strong Buy") to #5 ("Strong Sell"). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.
Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +30%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 270% annually (+3% versus +11%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
Zacks "Profit from the Pros" e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=2564.
Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3:1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit From the Pros by going to http://at.zacks.com/?id=2565.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
SOURCE: Zacks.com
Zacks.com Charles Rotblut, CFA 312-265-9352 Email: pr@zacks.com Visit: www.Zacks.com
More News:
Market Updates |
Stock Alerts |
All Trading News |
Stock Index
About TradingMarkets | Contact | Advertise | Careers | Link to Us | Site Map | Help | Terms & Conditions | Privacy Policy | Return Policy | Testimonials | Feedback
The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice.
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
The Connors Group, Inc.
15260 Ventura Blvd., Ste. 2200
Sherman Oaks, CA 91403
© Copyright 2009 The Connors Group, Inc.
