Fluor Corp (NYSE:FLR) Aligns with Peter Lynch’s Growth at a Reasonable Price (GARP) Strategy

Peter Lynch’s investment strategy centers on finding companies with steady growth at fair prices, commonly known as the "Growth at a Reasonable Price" (GARP) method. His approach prioritizes solid financials, consistent earnings, and reasonable debt, steering clear of overly speculative or high-growth firms. The strategy looks for businesses with earnings per share (EPS) growth in the 15% to 30% range, a PEG ratio (price/earnings-to-growth) under 1, and strong financial indicators such as a debt-to-equity ratio below 0.6 and a return on equity (ROE) exceeding 15%. These factors help investors identify companies that can provide reliable returns without overpaying for growth.

Fluor Corp (NYSE:FLR), a worldwide engineering, procurement, and construction company, meets many of these important standards, positioning it as a possible choice for long-term GARP investors.

Why Fluor Corp Fits Peter Lynch’s Strategy

1. Consistent Historical EPS Growth
   Lynch prefers firms with stable, moderate earnings growth. Fluor’s EPS has increased at an average yearly rate of 27.7% over the last five years, fitting within Lynch’s ideal 15%-30% range. This indicates the company has maintained profitability without relying on unrealistic growth.

2. Favorable PEG Ratio
   A PEG ratio under 1 suggests a stock may be undervalued compared to its earnings growth. Fluor’s PEG ratio of 0.74 implies the market has not fully recognized its past growth, matching Lynch’s idea of buying growth at a fair price.

3. Solid Balance Sheet
   Lynch avoids firms with high debt. Fluor’s debt-to-equity ratio of 0.18 is significantly lower than the strategy’s 0.6 limit, reflecting a cautious financial approach. Its current ratio of 1.62 also indicates enough liquidity to meet short-term obligations, a positive sign for stability.

4. High Return on Equity (ROE)
   ROE measures how well a company generates profits from shareholder investments. Fluor’s ROE of 69.5% is well above Lynch’s 15% minimum, showing strong earnings and efficient use of capital.

Financial Strengths and Weaknesses

Fluor’s fundamental report reveals a balanced but mostly positive outlook:

• Profitability: Fluor’s operating margin (1.97%) is lower than the industry average, but its profit margin (25.35%) is in the top 3% of competitors, thanks to effective cost control.
• Valuation: The stock trades at a P/E of 20.53, less expensive than 81.6% of industry peers and slightly below the S&P 500 average (26.54).
• Growth Challenges: Recent EPS fell by 28.8% year-over-year, but long-term growth remains steady, with analysts predicting 12.6% annual EPS growth ahead.
• Financial Stability: Fluor performs well on solvency measures, with a strong Altman-Z score (3.05) and manageable debt.

Final Thoughts

Fluor Corp matches several key aspects of Peter Lynch’s strategy: fair valuation, reliable historical growth, and a sound financial position. While short-term earnings fluctuations are a concern, its high ROE, low debt, and industry-leading profit margins make it a potential option for investors focused on sustainable growth.

For more stocks that align with the Peter Lynch screen, check the complete screener results here.

Disclaimer: This article is not investment advice. Conduct your own research or consult a financial advisor before making investment decisions.