FWLT Preview: Steady as She Goes?

Foster Wheeler (FWLT - commentary - Cramer's Take) is slated to report earnings before the open on Wednesday. Consensus estimates are for EPS of 89 cents on revenue of $1.78 billion. The engineering and construction company has topped estimates in three of the last four quarters, but this quarter will likely be as challenging as any in recent history.

In terms of earnings estimate revisions, this quarter's consensus has been pretty steady. That may be due to the fact that the projects Foster Wheeler works on are pretty long-dated projects and don't change that quickly. Estimates for next quarter have been steady as well.

The only estimates that have begun to come down are for 2009, as analysts question the impact of potential delays or cancelations of projects due to the global credit crunch and economic slowdown. Since last quarter, EPS estimates for 2009 have declined 5%, to $4.03, which would put the P/E on the stock at roughly 7x forward earnings.

Foster Wheeler still has a huge backlog of $3.3 billion and continues to win its share of projects, but the company has admitted to some delays in North America within its Global Power Group, and the prospect for further delays of projects will likely be the No. 1 concern that will hopefully be addressed on the conference call.

Other keys to the call will include the following:

• update on list of projects;
• visibility on future projects and demand from various industries;
• impact of economic slowdown outside of North America;
• margin trends; and
• progress on recently announced $750 million stock buyback.

I don't think there is much debate in terms of the long-term stability of this company. Foster Wheeler remains a leader in the engineering and construction space and will be a major player in the long-term buildout and upgrade of the global infrastructure.

The question is how much to pay for the stock, given the uncertain earnings stream. I sold half of our position in Foster Wheeler earlier this summer, but held on to some as a core position. Recently, I added back to the position when the stock was in the mid-$20s.

I think this is how I will likely approach this position, trimming shares after big rallies and looking to buy it back on material weakness. This is an active approach to owning a stock as a core position and trying to take advantage of the volatility to add value along the way.

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At time of publication, Kahn was long Foster Wheeler.

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.