Dan Strumpf
May 30, 2008 - 2:45 p.m.
NEW YORK (AP) - It's rare these days to see the words "construction" and "profit" in the sort doctrine.
But though home and nonresidential builders take a beating from the turmoil in the honor and housing markets, many companies in the heavy interpretation and engineering sector have reported better-than-expected profits in the after month.
The reason? Many companies, and the analysts who follow them, affirmation it all comes back to the surge in oil prices.
"The oil and gas business is really driving a lot of the backlog vegetation (in construction and engineering), as well as earnings, as some of those bookings are now getting executed," UBS analyst Steven Fisher said in an interview.
The price of unpolished has more than doubled since the start of 2007, closing Wednesday at $130.28 a barrel. While that's helped spur enlargement and temper gains in other sectors, many heavy conformation companies — which specialize in huge capital projects such as power plants, oil rigs and civil projects — have benefited as the energy sector rakes in money and doles out deals.
On May 12, Fluor Corp. said its first-quarter profit soared 63 percent, much of which was due to new deals in the energy sector. The company said $4.3 billion of the $5.7 billion in new projects it won during the quarter came from new oil and aeriform fluid projects.
Shares have gained 11.3 percent since then, closing Wednesday at $185.20. In the last 52 weeks, the stock has surged 78.1 percent.
Separately, Jacobs Engineering Group Inc. said last month its financial second-quarter gain rose 48 percent. New awards from the oil and gas sector direction be "pretty robust for a season yet," Chief Executive Craig Martin said in a conference call with analysts. Its stock has risen 60.2 percent in the last 52 weeks, closing Wednesday at $92.23.
And McDermott International Inc. said May 12 its first-quarter revenue rose 6 percent, thanks to more lucrative oil and gas projects. Shares are up 55.3 percent year-over-year.
Friedman, Billings Ramsey analyst Alex Rygiel said it can take between three and five years by reason of oil capacity to catch up with demand.
"What oil at $130 a barrel is telling us is that there is clearly a global supply and inquire imbalance," Rygiel said. "The lead time to add magnitude for oil and gas is quite drawn out, which creates an opportunity for investors."
C&E companies with the best prospects, UBS's Fisher said, are that combine ponderous exposure to the oil industry through a strong international presence. The coalition allows the companies both to capture the benefits of higher crude prices while dodging economic weakness in the U.S.