Industrials

What a Biden Presidency Could Mean for the Construction Industry

It’s probably safe to say that the November 2020 election is shaping up to be unlike any other in our lifetimes. With less than three months to go until November 3, former U.S. Senator and Vice President Joe Biden is leading Donald Trump in most polls.

Biden’s campaign website lays out 45 plans and agendas for addressing the major issues the country faces. Some of these ideas articulate how he plans to approach the social issues in the United States, and others promise massive government spending to serve two purposes: get Americans working again and, in doing so, rebuild the U.S. economy.

Last month, Biden released an updated plan committing to spend $2 trillion over four years that will put the United States “on an irreversible course to meet the ambitious climate progress that science demands.” That spending includes investments in infrastructure, the auto industry, mass transit, electric utilities, housing and buildings, agriculture and conservation, research and development, and environmental justice.

Every four years, the American Society of Civil Engineers (ASCE) prepares an infrastructure “report card” that includes an estimate of the investment needed to bring U.S. infrastructure back to a better-than-passing grade. The last report was completed in 2017 and set the country’s needed infrastructure investment at $2 trillion over the 10-year period between 2016 and 2025.

Construction projects identified by the ASCE cover everything from repairing roads to modernizing U.S. schools and updating the country’s airports. Construction industry publication Engineering News-Record listed in May 2019 the nation’s top 400 construction companies for 2018. The largest, measured by revenue, was Virginia-based Bechtel with revenue of $16.8 billion.

Of the top 10, just three were publicly traded in the United States, and two others were subsidiaries of foreign firms. The rest, including Bechtel, were privately controlled.

While it may be easy to look at potential outcomes in a vacuum, a slew of variables could boost or dampen the business effects for a sector or for corporations as a whole. Tax changes could lower the after-tax net income effect, regulation costs and industry practice changes can increase operating expenses, and changes in employment laws also could come into play. In short, it may be easy to see an opportunity for some companies, but it’s hard to know exactly what the net result will be.

Here’s a look at four of the largest U.S. construction companies and how they look now to investors. If Biden wins the White House in November and can implement his infrastructure plan (by no means a slam dunk), all four could see their prospects rise considerably. It is important to note that infrastructure modernization has been on political wish lists for years, and the gap between what needs to be done and what gets done is widening, not closing.

Fluor

In 2018, Fluor Corp. (NYSE: FLR) posted revenue of $15.6 billion, making it the second-largest construction firm on the Engineering News-Record list. Fluor provides engineering, procurement, construction (EPC) services, as well as maintenance services, to customers in a variety of industries. According to the Construction Dive website, Fluor is the top construction firm in the petroleum and industrial sector.

The company’s market cap is about $1.7 billion, and it has taken a big hit to its share price in the past two years, dropping about 80% of its value. In March, Moody’s Investors Service put the company’s Baa3 senior unsecured debt rating under review for a downgrade citing “recent deterioration in [Fluor’s] operating results and credit metrics due to project bidding and execution issues and the risk these trends will persist.”

Fluor’s 52-week range is $2.85 to $22.49, and the stock closed Monday at $11.96. At a price target of $13.00, the implied upside is 8.7%, and shares trade at a multiple of 10 to estimated 2021 earnings. Fluor has suspended its dividend payments.