D.A. Davidson Comments On The Engineering And Construction Sector, Offers Top Picks

John Rogers of D.A. Davidson commented in a note on Wednesday that recent declines in oil prices will “undoubtedly” slow spending on some oil and gas sector work, which may prove beneficial to consumers but could hurt engineering and construction firms.

Rogers notes that shares of most engineering and construction firms have declined sharply as of late, even those with minimal exposure to oil and gas projects.

“The pace of growth remains subdued relative to previous recoveries,” Rogers wrote. “We expect the recent oil price drop, global macro concerns and a lack of inflation will continue to encourage a cautious pace of investment by owners over the near-term. The collapse in oil prices is likely to substantially change the investment appeal of some major construction projects; however, demand in other sectors could increase.”

The analyst adds that overall the impact of lower oil and gas prices should encourage construction spending, especially if the price decline is a function of supply growth outpacing demand gains. However, Rogers cautions that these benefits will be far from uniform among firms.

Bottom line, the selloff seen in engineering and construction firms has brought valuation levels below historical norms. Rogers suggests that shares of many firms may be “attractive” and “generally compelling” based on current prices relative to his outlook for earnings and cash-flow along with historical results.

Rogers notes that shares of the following stocks are all Buy rated based on each company's prospects relative to current share price levels:

Chicago Bridge & Iron Company N.V. (NYSE: CBI)

Dycom Industries, Inc. (NYSE: DY)

Emcor Group Inc (NYSE: EME)

Comfort Systems USA, Inc. (NYSE: FIX)

Fluor Corporation (NYSE: FLR)

Great Lakes Dredge & Dock Corporation (NASDAQ: GLDD)

Jacobs Engineering Group Inc (NYSE: JEC)

KBR, Inc. (NYSE: KBR)

Mastec, Inc. (NYSE: MTZ)

Quanta Services Inc (NYSE: PWR)

Primoris Services Corp (NASDAQ: PRIM)

Tutor Perini Corp (NYSE: TPC)