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STOCKWATCH / Robert Hanley

Engineering Group Viewed as Leading Recovery : Fluor Seen Facing Bears First, Bulls Later

July 13, 1986|ROBERT HANLEY

Although his long-term forecast for Fluor Corp. remains decidedly bullish, Richard Rossi of the New York investment firm of Merrill Lynch, Pierce, Fenner & Smith Inc. has lowered his estimates for Fluor's fiscal 1986 from a 25-cent-a-share profit to a net loss of between 25 cents and 50 cents a share.

Based on Fluor's current 79.2 million outstanding shares, that translates to a net loss of between $19.8 million and $39.6 million. That's still quite a bit less than the steep $633.3 million that the Irvine-based engineering, mining and construction firm lost in fiscal 1985. Last year's loss resulted largely from more than $400 million in write downs.

Rossi said he lowered his expectations for fiscal 1986 primarily because sluggishness in Fluor's order rates and continued softness in the metals market means that the company will remain "marginally in the red" for the rest of this year.

A Fluor spokesman refused to either affirm or disavow Rossi's estimates, citing company policy. However, the spokesman readily agreed that as one of the more diligent Fluor watchers, Rossi is "well educated" when it comes to the company.

Despite the anticipated soft second-half and consequent yearly loss, Rossi has not changed his estimate of 75 cents a share, or about $59.4 million in net earnings, for Fluor's fiscal 1987.

Early Stages of Recovery

In fact, in a recently issued buy recommendation, Rossi told investors that Fluor stock is attractive because the firm's engineering group is in the early stages of a "significant business recovery," that, coupled with its ongoing restructuring, should translate into stronger market position and better profits.

Listed on the New York Stock Exchange, Fluor currently is trading at about $15.75 a share, roughly midway between its 12-month low of $13.75 and its 12-month high of $19.25. It could take a while to get there, but Rossi told The Times that he believes Fluor shares eventually could trade in the high-$20 to low-$30 range.

Among Fluor's brighter prospects is its increasing presence in the engineering and building of "infrastructure" projects, which by Rossi's definition include not only power stations, waste-water facilities and the like, but automobile factories and other manufacturing plants as well.

Because such projects carry smaller price tags than the oil refineries upon which Fluor used to thrive, the heady days of $15-billion backlogs are probably history. But, because fewer subcontractors typically are involved in the infrastructure jobs, the "quality of the revenue" in Fluor's current $4.7-billion backlog is better," Rossi said.

"I'm talking about a three-year-plus period before everything works out," Rossi said. "But I'm not expecting the market to wait till everything comes together. You'll see some anticipatory rise."

Additionally, Rossi said, as Fluor's financial position improves, so do the prospects of a substantial stock buy-back of as much as one-third to one-half of its outstanding shares. Several Wall Street analysts have cited pledges by Fluor officials that they will "improve the return on equity" of Fluor shares as a signal that an eventual stock repurchase is in the offing.

However, such a buy-back would not necessarily happen all at once and would depend in large measure on Fluor's ability to sell off some of its lackluster minerals assets, Rossi said. Because of this, a stock repurchase isn't likely to occur before 1987, he said.

Commtron, a consumer electronics subsidiary of Bergen Brunswig Corp. that went public last week with an offering of 12 million shares at $2 each, took a beating by the close of the markets Friday--losing $1.25 since its initial offering Tuesday. The issue hit a new low of $10.625 a share Friday on the American Exchange before rebounding slightly to close the week at $10.75 a share.

FHP Corp. on Friday was quoted at a bid price of $11 a share, off $1 from its initial offering price of $12 a share on July 2. Shares of the Fountain Valley-based health maintenance organization slid immediately following the offering to close on July 2 at a bid price of $11.50 a share.

The American Stock Exchange said Friday that Irvine-based Ultrasystems Inc. has been approved for Amex listing and will begin trading Monday under the symbol ULS.

Ultrasystems sought Amex listing for several reasons, including preventing market players from short-selling its stock on downward movement, company officials said. Although short selling on the down tick is permitted among over the counter issues, the Securities and Exchange Commission forbids the practice among exchange-listed stocks.

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