FLR - Valens Credit Report - 2023 04 11
Cash bond markets are overstating FLR's credit risk with a YTW of 6.436% relative to an Intrinsic YTW of 5.204%, while CDS markets are accurately stating FLR's credit risk with a CDS of 186bps relative to an Intrinsic CDS of 156bps. Furthermore, Moody's is overstating FLR's fundamental credit risk with its Ba1 credit rating three notches below Valens' IG4+ (Baa1) credit rating.Incentives Dictate Behavior™ analysis highlights mixed signals for credit holders. As a positive, management's compensation metrics should focus them on all three value drivers; margin expansion, asset efficiency, and revenue growth, which should lead to higher Uniform ROA and more cash flow available to service debt obligations.
Earnings Call Forensics™ of the firm's Q4 2022 earnings call (2/21) highlights that management is confident they have an opportunity to expand capacity for a pharmaceutical company in their Life Sciences business and that they are focused on growing markets outside of oil and glass, including providing solutions for government clients. In addition, they are confident their sustained realized cost savings have already surpassed their initial targets and that they can achieve their long-term 2026 adjusted EBITDA guidance. Lastly, management is confident they are seeking fair and balanced terms in their contracts, that their cash balance includes $338 million held at NuScale, and that they have no additional debt maturities until December 2024.
Fluor is a holding company. Through its subsidiaries, the company provides engineering, procurement, construction, fabrication and modularization, operations, maintenance and asset integrity, as well as project management services. The company serves a set of industries including oil and gas, chemicals and petrochemicals, mining and metals, transportation, power, life sciences and manufacturing. The company is also a service provider to the U.S. federal government and governments abroad; and it performs operations, maintenance and asset integrity activities for industrial clients. The company has four segments: Energy & Chemicals; Mining, Industrial, Infrastructure & Power; Diversified Services; and Government.
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