Sometimes, you get the impression that the world’s largest economy is really a third-world country. The headlines tell the distressing story: collapsing bridges, dysfunctional water systems, decrepit subways, pockmarked roads and highways, antiquated energy grids. The list goes on and on.
America faces a daunting repair bill, but its squabbling lawmakers in Washington, D.C., keep kicking the can down the road.
The Social Progress Imperative this year unveiled its annual Social Progress Index, revealing that the U.S. ranks 34th among all nations in access to water and sanitation. In a July 2013 report, the McKinsey Global Institute reported that the U.S. must spend at least $150 billion annually through 2020 just to get the country’s infrastructure up to standard.
What are the feds doing about it? Well, the nation’s capital remains in bitter gridlock and Congressional leaders repeatedly rebuff President Obama’s requests for greater infrastructure spending.
But while Congress feuds and procrastinates, state and local officials are filling the void with action of their own — which presents a little-noticed investment opportunity.
As state and local infrastructure spending ramps up, one company in particular stands to benefit: Texas-based Fluor (FLR), the largest and most diversified company in its sector, providing engineering, construction and project management services around the globe.
The media isn’t covering it, but Fluor has its fingers in many huge state and local initiatives. And those initiatives are gaining steam.
The National Organization of State Budget Officers reports that most governors have successfully shepherded through their respective legislatures big increases in infrastructure spending for 2014 and beyond, financed by toll hikes, bond issues, new infrastructure-specific taxes and other targeted financing mechanisms that most taxpayers are willing to accept.
This year, the nonprofit research group Infrastructure USA reported that at least 28 states and local jurisdictions are reconstructing or proposing to reconstruct highways and bridges without federal assistance. What’s more, 33 states recently launched public-private partnerships for transportation projects.
As part of Washington’s chronically congested Capital Beltway, Fluor completed and now operates and maintains new toll lanes along 14 miles of I-495. The firm used debt and equity to finance about $1.5 billion of the project’s $2 billion cost. FLR is currently in a partnership with the state of Virginia to finance, build and maintain new roads and toll lanes south from the Beltway along I-95.
Fluor is well connected with state and local officials and lobbyists; it’s an entrenched player in government infrastructure circles. And its work is respected, making it a known and trusted quantity in an era of scandals over shoddy construction work.
In September, Fluor’s 95 Express Lanes project in Virginia received the American Road & Transportation Builders Association’s Transportation Development Foundation 2014 Contractor Safety Award.
With a whopping market cap of $10.4 billion, Fluor stock is a colossus in the construction industry. And yet, despite its future growth prospects, it’s trading at a bargain. FLR’s 12-month trailing price-to-earnings ratio of 19 compares favorably to the P/E of 30.8 for its industry of heavy construction.
But as states and localities increasingly pony up for belated infrastructure investment, Fluor stock should rise down the road.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
