Stock of the Day - February 8, 2009 - FWLT

Foster Wheeler, Ltd. (FWLT)

There are just so many reasons to like Foster Wheeler (FWLT)! The stock price is ridiculously cheap, the company is experiencing unbelievable growth, and Obama’s stimulus plans will keep this company in demand for a long time.  Foster Wheeler is a global engineering, construction, and project management contractor and power equipment supplier. Foster Wheeler operates through two groups: The Global Engineering and Construction Group, and the Global Power Group. The E&C Group constructs oil and gas processing facilities and many other types of infrastructure facilities.  The Global Power Group makes equipment for electric power generating stations and industrial facilities.

The first influence on Foster Wheeler’s stock price that I will analyze is Obama’s stimulus plan.  If you have checked out the news for over one minute in the past three months, you know that one of Obama’s first goals as president is to spark the United States’ economy by passing a bill that is worth between $800-$900 billion.  The stimulus package will focus mainly on tax cuts, creating jobs, and spending on infrastructure.  Obama has pledged that the infrastructure spending will be used to improve and build roads, highways, bridges, and other public works.  As an energy and construction company, Foster Wheeler will undoubtedly benefit from this part of the stimulus package, as the Government will need companies to help build more power plants and power lines to support the building of public works projects.

But, the question becomes: Have the positive affects of the stimulus plan already been factored into Foster Wheeler’s stock price? Well, the low point for the stock was $13.86 on November 20, 2008.  But, as news of the stimulus plan started to heat up, Foster Wheeler closed at a high of $27.60 on January 6, 2009.  While this is a huge jump, you must understand that the entire stock market has come back since the lows of Nov. 20^th, and that Foster Wheeler’s stock price is still way down compared to its 52-week high of $79.97.  In addition, the stock has come down again since it reached $27.60, and is now at $22.40 and has been hovering in that range for a while.  So, while the news of Obama’s stimulus package did bring up Foster Wheeler’s stock price, I don’t think it has been brought up enough.  Investors are still underestimating the positive impact that the infrastructure spending will have on Foster Wheeler, for now and for the long-term. 

What makes Foster Wheeler so intriguing, though, is that it has so much more to look forward to than just the stimulus plan.  The company is set to win contracts for eight megaprojects across the world in 2009! These projects, which include building oil refineries and huge industrial facilities, are each worth billions of dollars and will keep Foster Wheeler busy for many years to come.  If the company is able lock up even half of its megaprojects (although the CEO sounds confident that it will sign contracts to do all eight), Foster Wheeler’s stock price will shoot through the roof.  So, while this might sound a little speculative, it seems like the odds are that Foster Wheeler will be signing huge contracts throughout 2009, and that can only mean great things for the stock price!

The third and possibly most important aspect of Foster Wheeler that makes me so impressed with the company is its overall health.  The company’s balance sheet is very strong, and it has very low debt-levels.  Foster Wheeler is spoiled with cash, as it currently has an absurdly high $9 of cash per share!  Even cash-rich Microsoft (MSFT) only has $2.28 of cash per share, a number that is still considered very solid.  In 2008, Foster Wheeler had earnings growth of over 30%, and the stock price fell from almost $80 to the $20’s.  The company expects to have over 30% earnings growth again this year with help from its megaprojects and the stimulus plan, and if there is any logic and rationality left on Wall Street (which I question at times), Foster Wheeler’s share price will increase based on these growth numbers.  The company’s PEG Ratio (read Term of the Day, Jan. 30) is also a ridiculously low 0.28, meaning that the stock is undervalued when comparing it to the company’s future growth potential.  The company’s very smart and well-polished CEO, Ray Milchovich, has also recently announced that he will lead Foster Wheeler for another 3 years, a very positive indicator that he is expecting good things to come.

Foster Wheeler has a strong balance sheet and it will continue to deliver strong earnings growth as a result of its potential megaprojects and its participation in Obama’s infrastructure spending agenda.  The company is releasing its 4^th-quarter results on February 24^th, and I would suggest buying it before then.  At $22, Foster Wheeler is a definite buy!

Niki Pezeshki

College Trillionaire