More Big, Inevitable Infrastructure Build-Out Winners (UBS, CBI, MDR, KBR, FWLT, FLR, ACM, TPC)
It has been estimated that $2.75 trillion will need to be invested in America’s aging infrastructure by 2020 to get our crumbling roads, bridges, highways, water systems and power grids back up to par. We have already offered up our own list of 11 companies that will win from the infrastructure rebuild. Now we have found a new list of infrastructure winners, and the overlap is minimal.
Many politicians in Washington, D.C., have howled over the lack of infrastructure spending, despite almost $1 trillion in stimulus being thrown at the economy since the Great Recession started in 2008. Did the president finally hint in last week’s State of the Union speech that long-awaited funding may be headed to infrastructure repair soon? Despite political posturing, both parties concede that infrastructure spending is a necessity. The engineering and construction analysts at UBS A.G. (NYSE: UBS) dissected the recent State of the Union speech and came up with some clear positives.
Among those positives: speeding up oil and gas permits, a “fix-it-first” infrastructure plan focusing on roads and bridges, and discussion of public/private infrastructure partnerships. They also spotted some negatives, which include the potential for executive orders to regulate carbon emissions at existing power plants, a headwind for coal/emissions spending, but a positive for carbon capture companies.
The team at UBS also pointed out that, while the engineering and construction sector has outperformed the market over past one, three and six month periods, they think relatively flattish backlogs in the first half of 2013 could moderate the outperformance in the near term. However, they expect backlogs to grow and drive better stock performance in the latter half of the year. That is a theme many bulge bracket Wall St. firms have echoed.
Here is a list of the UBS stocks in the engineering and construction sector they have ranked as a Buy:
Chicago Bridge & Iron Co. N.V. (NYSE: CBI) provides conceptual design, technology, engineering, procurement, fabrication, construction and commissioning services to energy and natural resource industries worldwide.
McDermott International Inc. (NYSE: MDR) operates as an engineering, procurement, construction and installation (EPCI) company worldwide. It focuses on designing and executing complex offshore oil and gas projects.
KBR Inc. (NYSE: KBR) is a global engineering, construction and services company. It has three individual segments that focus on oil and gas, government construction and power-generation facilities.
Foster Wheeler A.G. (NASDAQ: FWLT), through its subsidiaries, operates as an engineering and construction contractor and power generating equipment supplier worldwide. Based in Geneva, Foster Wheeler has both U.S. and international business to strengthen earnings.
Fluor Corp. (NYSE: FLR) is based in Dallas and, through its subsidiaries, provides engineering, procurement, construction, maintenance and project management services worldwide. Like KBR, Fluor has multiple segments that focus on oil and gas, industry and infrastructure, government construction and global services.
AECOM Technology Corp. (NYSE: ACM) provides professional technical and management support services for commercial and government clients worldwide. We recently highlighted this fast-growing company after Bank of America (NYSE: BAC) gave it a massive upgrade.
Tutor Perini Corp. (NYSE: TPC) provides diversified general contracting, construction management and design-build services to private clients and public agencies worldwide. The company operates in four segments: Civil, Building, Specialty Contractors and Management Services.
One interesting common thread in some of these companies is that they are extremely diversified, with multiple segments to cover a wide range of sectors and services. Again, as we pointed out previously, the total lack of spending on our domestic infrastructure has brought us to almost crisis levels. This leaves a massive opportunity for U.S. and North American infrastructure firms for capital investments in airports, seaports and waterways, road and rail, and electricity. The crisis level need may indicate that funding happens sooner rather than later.