Fluor Corp. (NYSE:FLR) Attractive Investment Opportunity

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Using The Applied Finance Group's AFG’s research, investment tools and proven techniques for identifying under/overvalued companies, we have picked out Fluor Corp. (NYSE:FLR) as an attractive investment opportunity. Fluor displays many of the characteristics of a company likely to outperform - it ranks well against its sector peers in terms of valuation and corporate performance (Economic Margin – What a company earns above its true cost of capital), and has a management team that understands how to create wealth for its shareholders. Back-tests have shown that companies with attractive default valuations and EM Change* greater than its sector peers are the companies most likely to outperform within the sector.

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The Wealth Creation chart below shows that in the 2004-2008 period Fluor Corp. (NYSE:FLR) was able to increase their positive Economic Margins while growing their asset base, a strategy AFG has identified as consistent with creating wealth for shareholders. During this same time period the company has outperformed the S&P 500 Index as well, an indication that the market rewards wealth creation.

*EM Change – measures the change in a company’s EM’s from LFY to the projected year.

As we see in the Intrinsic Value chart below, currently the company is trading below its intrinsic value as identified by AFG’s valuation model and appears undervalued.

Using the Value Expectations interface to help understand the embedded expectations built into stock prices, we see that FLR will need to deliver 9% sales growth over the next 5 years to justify its current trading price of $45. Great companies do not always make great investments, therefore it is extremely helpful to understand what you are paying for in terms of future expectations when adding a company to a client portfolio. The 9% sales growth implied in the current price looks very reasonable relative to what the company has been able to deliver historically (see 5 year median sales growth), although it is quite steep relative to what the street is saying FLR will deliver in revenue growth over the next few years.

Note: The Value Expectations interface could be utilized to come to an NPV target price based on your own sales growth assumptions as well.

Overall the company looks very attractive as a potential investment opportunity according to the criteria used in AFG’s systematic approach for identifying mispriced stocks.

All of the variables used to rank FLR’s attractiveness in this article have proven to be effective at identifying stocks that are more likely to outperform. Click here… to see the track record of these variables over the past 10 years.

If you are a professional investor and would like to see if your current holdings meet AFG’s criteria CLICK HERE.