Rio Tinto gives WorleyParsons a key contract: Is either company a buy?

The WorleyParsons Limited (ASX: WOR) share price has rebounded from an early drop after it announced a new engineering, procurement and construction management (EPCM) contract awarded by Rio Tinto Ltd (ASX: RIO).

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The WorleyParsons Limited (ASX: WOR) share price has rebounded from an early drop after it announced a new engineering, procurement and construction management (EPCM) contract awarded by Rio Tinto Ltd (ASX: RIO).

What did WorleyParsons announce?

WorleyParsons announced that it has been awarded a contract to perform EPCM services for Rio Tinto's Koodaideri iron ore mine in the Pilbara region of Western Australia.

The award of the EPCM contract follows the completion of the detailed engineering study for the Koodaideri project.

The project will be executed over a three-year period from the Perth project office with additional support teams on the mine and rail locations.

Management said that WorleyParsons will use data-centric engineering processes to also produce a digital asset for Rio Tinto in an expansion of one of its key strategic relationships.

Are WorleyParsons or Rio Tinto in the buy zone?

The WorleyParsons share price is up 29% year-to-date (YTD) and announced a half-year underlying net profit after tax (NPAT) of $98.4 million, up 25.8% on the prior corresponding period (pcp) in February 2019.

The group's share price plummeted 41.4% in Q4 2018 to close out the year at just $11.42 per share in line with fellow engineering, procurement and construction (EPC) providers Seven Group Holdings Ltd (ASX: SVW) and Emeco Holdings Ltd (ASX: EHL).

The EPCM space has been particularly volatile with intense competition driving profit margins lower and requiring companies to operate with a wafer-thin equity buffer on many projects.

While I'm not bullish on the EPCM contractors, the likes of Rio Tinto could certainly be in the buy zone. Rio and fellow blue-chip miners including BHP Group Ltd (ASX: BHP) and Fortescue Metals Group Ltd (ASX: FMG) have propped up the S&P/ASX200 Index (ASX: XJO) in 2019.

The Rio Tinto share price has rocketed 31.3% higher so far this year on the back of a commodities rebound and strong earnings numbers.

I think there is potential for Rio to continue to climb and I'm a big fan of the company's strong earnings per share (EPS) amongst its ASX200 peers, with the stock trading on a P/E ratio of just 9.1x earnings.

For those who like stable dividends, Rio might just provide the best of both worlds in terms of growth and income over the next 12-18 months.

For those who want to find the next hot growth company, this top-rated stock could boost portfolio gains as it continues to soar in a $22 billion industry.

Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Three businesspeople leap high with the CBD in the background.
Share Market News

Boom! ASX 200 blasts to new record highs

ASX 200 investors just sent the benchmark index into uncharted territory.

Read more »