With two recent major contract wins and potential future exposure to data centre builds, it's no surprise Macquarie analysts have taken a shine to Worley Ltd (ASX: WOR) shares.
Worley is a diversified contractor with its work spread across the energy, chemicals, and resources sectors. It's also diversified geographically, with about 44% of revenue coming from the Americas, plus plenty of work for the major miners back home here in Australia.
The company in August delivered underlying earnings growth of 10% to $823 million, and managing director Chris Ashton said at the time that the macroeconomic trends "driving medium to long-term demand in end markets remain strong and underpin a healthy pipeline of future opportunities''.
He also said more than half of the company's revenue came from lower-risk professional services contracts, and that Worley would not seek to bid on major, competitively-bid projects.
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Pipeline of work strong
More recently, the company announced two major contract wins this month, with the latest a project with Rio Tinto at its Australian iron ore operations, building on the two companies' 25-year relationship.
Earlier in the month, Worley announced it had been awarded a contract by ExxonMobil for a major reconfiguration of its Baytown complex in Texas.
Valuation looking cheap
The team at Macquarie recently ran the ruler over Worley, and said the company's share price "continues to lag traditional valuation measures'', with the company trading at a discount to its peers.
This reflected a mixed macroeconomic environment, the Macquarie team said, with tariffs and their cost impacts having an impact on project investment decisions, as well as oil price weakness factoring in.
But they said contract awards should start to pick up over the next six to 12 months as the market adjusted to the tariff settings in the US, "and with buoyant end market conditions in LNG & resource markets".
The Macquarie team said Worley has a good depth of experience in the US energy market, which puts it in a good position as data centre builds continue to increase.
As they write:
Worley has a long history in the US power sector including via its 2004 Parsons acquisition and is well placed to provide power solutions to data centres and more broadly.
Macqaurie has a price target of $16 on Worley shares, compared with Wednesday's close of $14.30.
Once dividends are factored in, they are expecting a total shareholder return from Worley shares over the next year of 15.3%.
