NEW YORK (TheStreet) -- The value of new projects obtained by engineering and construction, or E&C, companies could drop 25%-30% in 2015 due to the decline in oil prices, Deutsche Bank wrote in a note to investors today. The firm downgraded two names in the space, Fluor (FLR) - Get Fluor Corporation Report and KBR (KBR) - Get KBR, Inc. Report , to Hold from Buy as a result.
WHAT'S NEW: As a result of the sharp drop in oil prices, many projects that had been boosting the results of engineering and construction companies are no longer economically viable, Deutsche Bank analyst Vishai Shah wrote. Projects in this category include petrochemical, liquid natural gas, and oil and gas undertakings. Additionally, the high volatility of oil prices will make it difficult for companies to approve new projects even if they can generate acceptable returns at current oil prices, the analyst added. The margins of companies in the space could come under pressure, and they may need to reduce their 2015 earnings guidance, Shah warned. Among engineering and construction companies, Fluor and KBR have the greatest risk of reporting weaker than expected 2015 results, the analyst warned. Moreover, the companies' valuations are higher than average for the sector, and fail to adequately reflect the risks they are facing. Shah believes.
WHAT'S NOTABLE: Conversely, expectations are very low for another company in the sector, Chicago Bridge & Iron (CBI) , whose results could benefit from an acceleration in gas-fired power plant projects this year, the analyst stated. Shah cut his price target on Fluor to $57 from $83 and on KBR to $16 from $24. He lowered his price target on Chicago Bridge & Iron to $51 from $80 but kept a Buy rating on the shares.
PRICE ACTION: In early trading, Fluor fell 3.5% to $53.22, KBR slid 5% to $16.64, and Chicago Bridge & Iron retreated 3.5% to $37.83.
Reporting by Larry Ramer.
provides comprehensive coverage of stock news and Street research and delivers it in real-time. The Fly breaks market-moving news and explains sudden stock movements in a rapid-fire, short-form story format. Follow @theflynews on Twitter. For a free trial, click