Shares in resource engineering contractor WorleyParsons Ltd [ASX:WOR] soared by more than 6% today, racing ahead of a bullish Australian stock market. After an ordinary past six months, WorleyParsons shares are inching back towards the levels they enjoyed prior to November’s shock profit downgrade.
With no major announcements from the company over the past few days, today’s price action shows how influential certain analyst’s reports can be. This morning investment bank Bank of America Merrill Lynch upgraded its recommendation on WorleyParsons from ‘Neutral’ to ‘Buy’.
In short, BAML views WorleyParsons shares as far too cheap considering the company’s growth prospects. BAML is pointing out WorleyParsons’ potential to improve its profit margins and highlighting the greater reliance that oil and gas companies will have on firms like WorleyParsons to deliver more complex projects. With the business generating a tonne of free cash flow, there’s plenty of scope for pleasant dividend surprises.
Professional investors have given this report the biggest tick possible: they’re buying the shares today and pushing up the WOR stock price.
With WorleyParsons shares still significantly lower over the past 12 months, let alone relative to 2007’s all-time high, there’s no denying the company looks relatively cheap.
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If WorleyParsons’ full year result lifts investor confidence that BAML’s predictions are achievable, then there’s every chance the shares could continue to rise in value.
Tim Dohrmann+
Small-Cap Analyst, Money Morning
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