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We are upgrading FWLT to Buy from Neutral and adding it to the Conviction List as we
believe energy infrastructure (EI) stocks could rally intra-quarter given lack of negative
catalysts until the May earnings period. Three reasons to Buy FWLT: (1) 2009/2010
consensus estimates have come down much more than its peers, (2) despite industry-wide
award delays, FWLT booked its largest project ever recently and has n-t prospects and (3)
relative valuation looks compelling. FWLT is currently trading at 43%/42% discount (on
GS FY2 estimates) to bell-weathers JEC & FLR compared to an average discount of
20-25% since 2006.
Catalyst
We retain a Cautious E&C coverage view as we believe estimates are too high and expect
the May qtr. to be weak. However, EI stocks could rally n-t with crude oil prices as recent
supply cuts suggest crude oil markets are coming back into balance, with our oil analysts
expecting WTI to recover to $50-$60/bbl in 2H09. Key near-term catalysts for FWLT are:
(1) Full release of Projects #2/#4: This would add approximately 2.4m man hours to
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its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment
decision.
Foster Wheeler Ltd.
backlog (c.15% increase). Project #2 could book as early as 2Q09.  2) Potential new awards: FWLT
just booked Paradip and also alluded to a scope addition on BP Whiting. Recently, the Majors were
also upbeat on upstream projects, which could push forward FWLT’s LNG prospects.
Valuation
We are increasing our 2009/2010 estimates to $2.56/$2.25 from $2.55/$2.10 & raising our 6-month
price target to $23 from $18 on the back of stronger bookings. Our price target is based on 14.3X
normalized earnings of $1.62, a 5% discount to the target group multiple & implies upside of 31%.
Key risks
Weak global power market; award delays/cancellations.
2 Goldman Sachs Global Investment Research
Foster Wheeler Ltd.
Goldman Sachs Global Investment Research 3