Foster Wheeler (FWLT) is a global engineering and construction contractor and power equipment supplier. The company, with over 14,000 employees, has operations in the near and far east as well as in the United States and Europe.
FWLT has been especially hard hit by the global recession as a large part of the company’s business had been stimulated by the previously high rate of growth in India, China, Korea, Russia and Brazil.
As the economies of these emerging nations slow, the demand for new and expanded power generating facilities also slows. The resulting drop-off in business for Foster Wheeler has reduced the company’s manhour backlog substantially.
Recent news affecting the company has significant implications not only for the company but for the world economy as a whole.
Foster Wheeler has announced an agreement for the construction of the largest refinery ever built. The project, to be located in India, will expand the manhour backlog at the engineering and construction segment of the company to more than 15.3 million, up more than 21% this year from the year-end figure in 2008. The contract has a value of two to three billion dollars.
The construction of the refinery is a sign that there is some anticipation that the economy in India is primed for recovery. This is one of the few signals at the current time that the recession anywhere in the world may have reached its low point and the economies in parts of the globe are ready to resume their growth.
FWLT has been in a year long slide and reached a low point of $12.73 just one week ago. The stock has gone up close to 30% since then and is now trading at $16.25 per share.
That the stock had fallen so significantly from its high of $79.97 in mid April of 2008 is an example of an otherwise strong company with effective management being swept up in global concerns. A micro-analysis of the company would suggest that the dramatic slide in market value is unwarranted.
Foster Wheeler has an exceptionally strong balance sheet with high liquidity. With nearly $800 million in cash even after spending $485 million repurchasing company stock, the company has a current ratio of 2.1 and a long term debt to equity ratio of 49.6.
The company reported a third consecutive year of record earnings in 2008, generating net income of $3.68 per share, or $526.6 million. At a current P/E of under 7 the stock has considerable upside.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
