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Fluor vs. Foster Wheeler: Which One Works?

We also saw a more steady performance for Fluor during the 2008-10 recession, where revenues declined at a far slower pace than for FWLT. FLR's diversity has served it well, limiting the impact of major declines in individual industries and allowing the firm to invest where the growth is, at any given moment.

Valuation

Foster Wheeler carries a EBIT/Enterprise Value of 16%, vs. 3/5 year averages of 9.9%/11.4%. Its price-to-sales ratio is 0.42 (3/5 year avg. of 0.82/0.94) and the price-to-book is 2.49.

Fluor's EBIT/EV is 14.2% (10.6/11.0%), price-to-sales is 0.34 (0.48/0.50), and price-to-book is 2.66.

The nod here clearly goes to Foster Wheeler, which is straight up cheaper, even with similar historical valuation ranges to Fluor. But it bears mentioning that both stocks trade at meaningfully lower valuations than they normally do.

Conclusion

As is often the case, this is a close call, and MFI investors can probably do pretty well with either stock over the next year or so.

That said, MagicDiligence will give the nod to Fluor. The primary factor in this decision is Fluor's diversity and scope, which really paid off for the firm during the recession and allows it to focus on whatever industry or project is most attractive at present. Consider that, in 2008-09, Fluor earned nearly 60% of sales from oil and gas when that industry was in a boom period. Then, Fluor lost some gigantic refinery contracts, saw half its oil and gas backlog disappear, and yet still performed relatively well as its other segments picked up the slack.

A similar occurrence for Foster Wheeler could have decimated that company, considering the lack of options. While FWLT is a slightly cheaper stock, the difference isn't enough to make up for what seems like a bigger downside risk.

At the time of publication, Alexander held no positions in any stocks mentioned in this article.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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