Analyst Trims Engineering & Construction Outlook On Oil Glut

New projects for engineering and construction companies related to oil and gas will decline by 25 percent in 2015 according to an analyst who trimmed earnings forecast for the group Tuesday. Deutsche Bank's Vishal Shah downgraded to Hold the Texas based companies Fluor Corp.

and KBR Inc.

citing a weakened pipeline of new projects. But Shah reiterated Buy ratings on three similar companies in the sector whose revenue visibility and potential for new business he believes are undervalued. Those include Netherlands-based Chicago Bridge & Iron Company N.V.

, MasTec Inc.

of Coral Gables, Florida, and Quanta Services Inc.

of Houston. On more than a half-dozen companies in the sector, Shah cut his earnings forecast for 2015 by more than 14 percent, on average, to reflect a likely slowdown in underpinning projects and subsequent margin compression. As the downturn in the energy sector plays out, Shah said investors in the engineering and construction sector will increasingly focus on balance sheet quality. One emerging bright spot: gas-fired power generation projects which could partly offset declines related to oil and gas production and delivery.