Friday, December 19, 2008

Flour (NYSE:FLR): Downgraded to Sell at Citigroup

Citigroup downgrades Flour (NYSE:FLR) to Sell from Hold partially on the Obama Overbuilt thesis, but also on project-specific risk at Al-Zour. They find FLR shares are up ~60% since mid-November, and this cannot be accounted for by 1) the Obama impact and 2) the recent rally in energy-related shares. They also believe there is increasing risk Fluor’s piece of the $15 billion Al-Zour refinery may be canceled by the Kuwaiti Oil Ministry.

- Citi calculates an average EPS impact of the Obama plan less than 5% over the next two years. This impact has been more than factored into E&C shares over the last four weeks as the names are up 76% - far more than both the S&P Energy Index and the impact of a stimulus package. Risk of Obamamania hitting a reality check is high, particularly hen oil prices have slid over the same four weeks. Firm's math concludes two of the E&Cs, Foster and McDermott, should not benefit at all from a stimulus package.

- The $15 billion Al-Zour refinery may be canceled by the Kuwaiti Oil Ministry, and this project was already included in Fluor’s backlog (Fluor won the $2 billion utilities package for the facility.) News reports of the project’s demise are not new. But the project’s viability appears more at risk the further oil and gas prices fall, and they believe it is now prudent to exclude it from their estimates.

Citi target is down to $37 from $41 fro FLR.

Notablecalls: FLR has been hit by several downgrades over the past week. GSCO put it to their Conviction Sell list last week while Lazard slapped a Sell on it yesterday. Stock has been pretty resilient but Citi's call may be the one to break the camel's back.

The wording of the call is strong and I suspect we will see FLR in the $44-$45 range today.