Fluor Corporation (FLR): Strategic Shifts and High-Margin SMRs Position It for a Turnaround

Fluor Corporation (FLR) has undergone a significant strategic transformation over the past year, pivoting away from volatile oil-and-gas markets toward high-margin, sustainable infrastructure and small modular reactors (SMRs). These shifts, combined with a robust backlog in growth sectors, suggest the engineering giant is poised for a long-overdue turnaround. While challenges remain—including unresolved legal disputes and recent insider selling—the company's focus on SMRs and infrastructure, coupled with an undervalued stock, makes it a compelling buy for investors willing to look past short-term headwinds.

The Backlog Shift: From Oil to SMRs

Fluor's backlog, a critical indicator of future revenue, now leans heavily toward high-margin sectors. In Q1 2025, non-oil/gas projects accounted for over 60% of revenue, up from 45% in 2020. The company's $24 billion backlog includes $2.4 billion in SMR projects like the RoPower Doicești plant in Romania—a 462 MW SMR initiative that's emblematic of Fluor's strategic pivot.

This diversification isn't just about revenue mix; it's about profitability. SMR projects carry margins of 10–15%, far above the 5–7% typical for oil/gas work. Q1 2025 revenue from NuScale, Fluor's SMR partner, surged to $13.4 million from $1.4 million in the prior year, underscoring the sector's growth potential.

Margin Expansion: SMRs as the Growth Engine

The SMR initiative is the linchpin of Fluor's margin expansion. With NuScale's design expected to secure U.S. Nuclear Regulatory Commission (NRC) approval by July 2025, the company stands to capture a first-mover advantage in the $500 billion global SMR market. The NRC's green light would unlock commercial deployment by 2030, enabling Fluor to scale projects like RoPower and secure long-term, high-margin contracts.

Meanwhile, Fluor's infrastructure pipeline—spanning grid modernization, hydrogen production, and LEED-certified facilities—is equally promising. The Urban Solutions segment grew 18% year-over-year in Q1, driven by projects like the Bayer Cell Therapy facility, which won the 2025 ISPE Facility of the Year award for sustainability. These projects not only boost margins but also align with global decarbonization trends, ensuring long-term demand.

Financial Resilience: Cash, Debt, and Share Buybacks

Fluor's balance sheet is in better shape than its stock price suggests. Despite a Q1 net loss of $241 million (due to NuScale's equity-method accounting), the company maintains $2.43 billion in cash and no near-term debt maturities. Management reduced debt by $163 million in Q1 and repurchased $142 million in shares, cutting outstanding shares by 1.5%.

While the stock has underperformed peers (down 15% since mid-2024), it now trades at just 6.2x forward EV/EBITDA, a discount to its peers in engineering and construction. This valuation reflects lingering concerns about backlog volatility and legal risks—but also presents a buying opportunity if Fluor delivers on its SMR milestones.

Risks and Challenges

Fluor isn't without its hurdles. A $790 million legal claim from Santos Ltd. and a $227 million dispute with the North Texas Tollway Authority remain unresolved. While management believes these are accounted for in reserves, their resolution could add volatility. Additionally, new backlog awards fell 17% year-over-year in Q1, a red flag in core energy segments.

Insider selling—executives offloaded $5.4 million in shares since 2024—has raised eyebrows. However, some sales were via 10b5-1 plans, and the focus on SMRs suggests leadership is prioritizing long-term value over short-term gains.

Catalysts to Watch

The next few months will be critical:
1. NRC Approval (July 2025): A positive ruling would validate SMR's commercial viability and trigger orders.
2. Q2 Earnings (August 1): Fluor's conference call will clarify SMR progress and backlog trends.
3. Legal Resolutions (2025): A Santos ruling by year-end could remove overhangs.

The Investment Case

Fluor's valuation is a stark contrast to its strategic progress. At $37.25 (as of July 7, 2025), the stock is 21% below Truist's $47 price target. Bulls argue that SMR's margin profile and NRC approval could boost EBITDA margins to 10% by 2026, driving a re-rating.

Bearish concerns—backlog declines and legal risks—are valid but manageable. The SMR tailwind, paired with a cash-rich balance sheet, suggests Fluor is more likely to surprise to the upside than the downside.

Conclusion

Fluor Corporation is at an inflection point. Its pivot to SMRs and infrastructure is reshaping its revenue mix and margins, while its discounted valuation offers a margin of safety. Investors should focus on the July NRC decision and Q2 earnings as catalysts. With a forward EV/EBITDA of 6.2x and a potential 26% upside to consensus targets, Fluor looks like a strong buy for those willing to bet on its long-term strategic vision.

The stock's recent dip creates a rare opportunity to buy a turnaround story at a valuation that doesn't yet reflect its SMR-led growth.