Fluor Corporation (NYSE:FLR) shares are up more than 8.71% this year and recently increased 3.87% or $2.09 to settle at $56.15. MasTec, Inc. (NYSE:MTZ), on the other hand, is up 5.41% year to date as of 01/10/2018. It currently trades at $51.60 and has returned 3.41% during the past week.
Fluor Corporation (NYSE:FLR) and MasTec, Inc. (NYSE:MTZ) are the two most active stocks in the Heavy Construction industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect FLR to grow earnings at a 11.92% annual rate over the next 5 years. Comparatively, MTZ is expected to grow at a 18.36% annual rate. All else equal, MTZ’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 9.33% for MasTec, Inc. (MTZ). FLR’s ROI is 6.90% while MTZ has a ROI of 8.50%. The interpretation is that MTZ’s business generates a higher return on investment than FLR’s.
Cash is king when it comes to investing. FLR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.13. Comparatively, MTZ’s free cash flow per share was +2.91. On a percent-of-sales basis, FLR’s free cash flow was 0.1% while MTZ converted 4.69% of its revenues into cash flow. This means that, for a given level of sales, MTZ is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. FLR has a current ratio of 1.60 compared to 1.70 for MTZ. This means that MTZ can more easily cover its most immediate liabilities over the next twelve months. FLR’s debt-to-equity ratio is 0.49 versus a D/E of 0.99 for MTZ. MTZ is therefore the more solvent of the two companies, and has lower financial risk.
FLR trades at a forward P/E of 22.76, a P/B of 2.39, and a P/S of 0.40, compared to a forward P/E of 16.35, a P/B of 3.22, and a P/S of 0.68 for MTZ. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. FLR is currently priced at a 15.7% to its one-year price target of 48.53. Comparatively, MTZ is -11.39% relative to its price target of 58.23. This suggests that MTZ is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.50 for FLR and 1.50 for MTZ, which implies that analysts are more bullish on the outlook for FLR.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. FLR has a beta of 1.43 and MTZ’s beta is 1.46. FLR’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. FLR has a short ratio of 4.43 compared to a short interest of 7.16 for MTZ. This implies that the market is currently less bearish on the outlook for FLR.
MasTec, Inc. (NYSE:MTZ) beats Fluor Corporation (NYSE:FLR) on a total of 9 of the 14 factors compared between the two stocks. MTZ has lower financial risk, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. MTZ is more undervalued relative to its price target.