Friday, October 15, 2010

Color of Foster Wheeler

Geneva-based Foster Wheeler AG (FWLT: Nasdaq) is included our new index for innovators in energy efficiency and pollution control - The Mothers of Invention list. The company is a seasoned engineering and construction operation with extensive experience in the petrochemical, utility and pharmaceutical industries. For the time being they are included in the Emissions Control Group.

Not to be left behind as the world’s energy complex turns away from fossil fuels to renewable energy sources, Foster Wheeler has been active in providing the engineering and design expertise need to integrate renewable fuel processes into the refinery and power plant infrastructure.

Earlier this month Foster Wheeler was awarded a contract by the CO2 Capture Project to study a variety of CO2 capture strategies for coal and natural gas power generation situations. The CO2 Capture Project is a consortium of seven of the world’s largest oil and gas producers, including Petrobras Energy (PZE: NYSE), BP (BP: NYSE) and Chevron (CVX: NYSE). Late last year, Foster Wheeler entered into understanding with PetroAlgae (PALG: OTC/BB) to develop processes that would facilitate the adoption of biomass-sourced oil that could be “dropped into” existing oil and gas refining and distribution networks.

Do not let all that “green” talk distort Foster Wheeler’s true color. The company is still very much involved in the fossil fuel complex. Its most recent contract award was from Japan’s Marubeni Corporation (536: JPY) for the design and supply of two pulverized coal steam generators to be installed for Vietnam Electricity.

Foster Wheeler is no micro-cap and some investors might wonder why The Small Cap Strategist is featuring a $3.0 billion market cap company. In my view, the company is worth watching and for the less risk tolerant investor a safer way to participate in the transition to renewable fuels. For example, Foster Wheeler is collaborating with PetroAlgae, which has a follow on stock offering pending to support development of its algae-based biofuel and protein technology. Unfortunately, PetroAlgae is not likely to generate revenue or profits for some quarters, leaving PALG among the riskiest in the new energy complex.

On the other hand, FWLT shares are unpinned by a company with consistent revenue, cash flow and earnings. The stock in currently priced at 9.2 times trailing cash flow, well under the industry average for engineering and contracting companies. On the downside, FLWT has a beta of 2.0, suggesting major moves in the broad market could be nail biters for FWLT holders.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

No comments: