Spotting a Trough for Foster Wheeler

Foster Wheeler (FWLT - commentary - Cramer's Take) will report earnings Wednesday morning; consensus estimates are for EPS of 69 cents on revenue of $1.47 billion. Both of those figures represent contractions from year-ago levels, which is understandable given the macro environment during the past year.

Foster Wheeler has topped expectations in three of the last four quarters, but with the earnings stream as irregular as it is, guidance is usually more important than headline numbers. Last quarter was a good example -- the company beat estimates but then talked about "lumpy" timing of projects and the "right-sizing" of the Global Power business.

Consequently, earnings estimates for 2010 came down dramatically. But recent first-quarter bookings have been pretty positive, including a huge refinery win in India as well as a smaller solar project just announced today. The company also was pretty upbeat at its recent analyst day, which hopefully translates into solid backlog results.

So it is very possible that 2009 could prove to be the trough year if the global economy continues to recover, not 2010 as current estimates are forecasting. One analyst report I read had Foster Wheeler's project tracker at record levels for potential work. I hope to hear more about the company's eight "mega" projects and progress updates therein; I'm also looking for clarity on opportunities in Iraq and this huge win in India.

These are all for the engineering and construction part of the business. Global Power is likely to remain weak. The company also likely faces some currency headwinds, as translation probably remained unfavorable for the quarter unless the company implemented some astute hedges. I will also be looking for an update on any further progress of the recent stock buyback program -- last quarter the company had $265 million left -- as well as any clarity on how Foster Wheeler might use its growing cash hoard (over $800 million).

As for the stock, I have traded around my position just a bit, adding to the stock in the high teens and trimming it when it bounced into the low $20s. Given that I think the worst could be behind us for the company, I would probably look to add back to the stock in the low $20s now and trim it if it got to the high $20s. That's just trading around a position to add incremental profits, but longer term I think the stock is too cheap (less than 9 times forward EPS) and still offers attractive potential returns. That said, let's wait for an update on guidance.

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Know what you own: Other companies in the infrastructure space include McDermott (MDR - commentary - Cramer's Take), Shaw (SGR - commentary - Cramer's Take), KBR (KBR - commentary - Cramer's Take), Jacobs Engineering (JCI - commentary - Cramer's Take), Fluor (FLR - commentary - Cramer's Take) and URS (URS - commentary - Cramer's Take).

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At time of publication, Kahn was long FWLT.

Jordan Kahn, CFA, is a portfolio manager with Bevery Investment Advisors, a Beverly Hills, Calif., money manager. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. Kahn appreciates your feedback; click here to send him an email.