WorleyParsons (WOR) Stock Recommendation

WorleyParsons (WOR) have a reiterated Outperform recommendation and a $20.60 12-month share price target from stock analyst, Macquarie Research Equities. They note that WOR has overnight announced that it has "won a US$250m FEED and detailed design contract for Saudi International Petrochemical Company (Sipchem). This one of Worley Parsons' largest ever contract awards and is another in a long line of recent contract wins." MRE said that "upside earnings risk exists for WOR." The work will be spread over at least two years and performed both in the country and in the US. This contract could lead to a construction management contract in 1 to 2 years time. The plant is due to be operational in late 2010. MRE estimates that the balance sheet will be almost net debt free by the end of FY07. Given management is preferred gearing ratio of 25 percent, WOR will have at least $150m available for acquisitions. This could rise considerably in the short term for the right acquisition. Worley Parsons announced four acquisitions in FY06 and two so far in FY07. WOR will continue to make acquisitions to fill geographic and skill gaps given its strong balance sheet. MRE's key theme with WOR is that demand from the oil and gas industry is strong given high oil prices and that the minerals industry is undergoing an investment boom benefiting WOR's minerals and metals business. The power sector outlook is also strong driven by both energy demands and environmental regulations. According to MRE, Worley Parsons (WOR) is a quality business which generates consistent profit growth and free cashflow. While the company shares are not cheap in the short term, MRE sees upside earnings risk given strong core markets and a lazy balance sheet.

Meanwhile, WorleyParsons (WOR) has a Buy 2 stock recommendation and a share price target of $24. Their price target and valuation is based on DCF, with $24 the low end of their valuation. UBS notes that: "Over the past three months the group has announced contracts with a total value to Worley of nearly A$700m, which compares to group revenues on a proportional consolidation basis of $2.4b in fiscal 2006. We view this as continuing evidence of both the strength of demand and the increasing capability of the company to execute large projects. There are no changes to our financial metrics, which presume a relatively high value of project wins over the next two years. What we find extremely encouraging is that all of these recent contracts are in the areas of the business that are relatively new to the company and are therefore the potential growth engines of the business."

WorleyParsons Limited is listed on the Australian Stock Exchange (ASX) under stock code WOR. You can view their investor website here. WOR was listed on the ASX on 28 November, 2002. Ron McNeilly is the Chairman of WorleyParsons and John Grill the current CEO. Worley Parsons is a provider of Professional Services to the Energy, Resource and Complex Process Industries. They are a dynamic company whose success has resulted from outstanding project delivery for clients around the world. In doing so they work through all five phases of an asset's lifecycle, customising their services for each sector. Read previous news and stock recommendations for WorleyParsons (WOR). Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. Check your charts and good luck with your share trading!