How has WorleyParsons Managed to Climb to a Four-Year High?

We’ve not seen a share price this high — now at $18.08 — since August 2014.

And this is after WorleyParsons Ltd. [ASX:WOR] bottomed out at a measly $3.55 in early 2016. They have been on a steady upward march ever since.

The service firm has managed an extraordinary turnaround for such a short period. If you invested in January 2016, your principal would have grown by over 500% in just two years!

Just how have they accomplished this feat in what seems like a dull industry — financial advice for resource and energy companies?

Why did this happen to WorleyParsons’ shares?

A lot of WorleyParson’s gains are tied to the profitability of large commodity multinationals like Chevron, Shell and Exxon…their customers. If they earn more, they buy more.

As profitability in the industrial sector recovers, producers look to increase capital investment and need advice. Enter WorleyParsons; the company predicts a near tripling in investment, from $56 billion to $147 billion, by 2019.

Since crude oil producers’ share prices are tightly bound to the price of oil, so is WorleyParsons’. And as we know, oil prices are far higher than the shallows hit in mid-2015.

Although oil prices have been steadily rising, it has taken time for energy companies to recover. The same goes for WorleyParsons.

A final reason for the company’s resurgence is their cost-cutting efforts. Their bottom line has been steadily improving as operating costs fall.

What’s next for WorleyParsons?

If the price of oil continues to rise, oil-producing companies will likely be further drawn out of their shell-shocked state and invest even more. More investment requires more advice and design help…a potential boom for WorleyParsons stock.

Wealth management company Macquarie has lifted its target-price for WorleyParsons, noting the greater volume of contracts as a positive indicator.

New and renewed contracts, such as the one signed with Chevron only last week, provide long-term, secure income. The Chevron deal is a sure thing for two more years!

Negative news does include possible exposure in Iran. The company received a contract in late 2017. Now, with US president Donald Trump’s revived sanctions, the project’s viability is less certain.

Anyway, it looks like today’s economic and political environment is (largely) a positive for WorleyParsons. While the Iran dilemma may bite, assuming OPEC keeps oil prices stable, their future is bright.


Ryan Clarkson-Ledward,
Editor, Money Morning

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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