WorleyParsons drifts into fundamental value

WorleyParsons (WOR) has drifted into 15.8 times earnings which is 3 points lower than its historical average of 18.77 times earnings.

- Price to earnings at 15.8 times earnings

- Share price still correcting after may fall

- Support: $22.86 and $22.10, Resistance: 23.85 and $24.43

From a fundamental point of view WOR is looking cheap, having been under immense pressure at the start of the year as fears around mining services companies mounted. This led to WOR being loosely associated with the fears followed by a May profit downgrade for FY13, which saw it heavily shed.

Falling over 15% on the downgrade management has been working overtime to return work-in-hand to normal to offset the profit loss and has looked to sure up its engineering and project management space.

The advantage WOR has over peers is the diverse range of product offerings, the coupling of environmental solutions, feasibility studies and project management which have always aloud WOR to be ahead of the curve.

The recent agreement with Shell illustrates that diversification. The deal spans the next five years with a further five-year renewal option. It will provide the full range of engineering, procurement and construction management product WOR is famous for and shows the pipeline will be maintained for years to come, suggesting current fears may be overdone.

The advantage of WOR’s product diversification reach is the countries and partners it has touch points with. The Shell deal signed in September sees WOR assisting in Shell's unconventional oil and gas assets in the US, Canada and Asia with the option of picking up contracts for future operations in Europe, Middle-east, South America, Australia, and Africa. WOR has similar projects with BG Group and Woodside Petroleum.

WOR’s global reach is another reason for the stronger fundamentals as country and project risk is widely dispersed.

From a technical point of view WOR has managed to retrace 62% of the year-to-date high to a year-to-date low.

Support appears solid in the low $22 range and has hit resistance at just above $24. With fundamentals looking historically cheap, a possible move higher to test the resistance level is a possibility in the short term and should be watched, and a break out of the resistance could see WOR heading back to the year-to-date high.

One year chart of WOR with the Fibonacci retracement of the YTD high to lowOne year chart of WOR with the Fibonacci retracement of the YTD high to low

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