Harvey impact seen as boon for some E&Cs, bane for others

As Harvey leaves a path of destruction in Texas, Citi analyst Andrew #Kaplowitz tells investors he sees potential impacts for Engineering & Construction names he covers, both positive and negative.

Meanwhile, his peer at Wells Fargo noted that multiple Houston area refineries have initiated shutdowns or curtailed operations, and may remain offline.

IMPACT FOR E&CS

Commenting on the potential impact of Hurricane Harvey, Citi’s #Kaplowitz noted that he sees potential impacts for his Engineering & Construction names, both positive and negative.

While it is way too early to tell how much ultimate impact the storm will have on the companies he covers, the analyst told investors he thinks there could be modest positive impacts for Jacobs Engineering (JEC), Fluor (FLR) and potentially Aecom (ACM) and for Quanta Services (PWR) and MasTec (MTZ), as E&Cs can assist with recovery and relief.

Additionally, he sees potentially negative impacts for Chicago Bridge & Iron (CBI). There are several larger projects still currently under construction on the Texas Gulf Coast and Southern Louisiana that could be significantly impacted by flooding rains, Kaplowitz pointed out, including CBI’s Cameron and Freeport LNG, and Axiall/Lotte Cracker, and Fluor’s CP Chem Ethylene Cracker and Sasol’s Cracker.

Nonetheless, the analyst acknowledged that forecasting any negative impact on these projects would be “highly speculative” at this point.

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ROOFING and BUILDING SUPPLY STOCKS

One primary beneficiary of any natural disaster of this magnitude would be supplier of products that are needed to rebuild. Here are a list of such companies:

Beacon Roofing (BECN): The company is a maker of roof shingles

Home Depot (HD)

Lowes (LOW)

Lumber Liquidator (LL)

United Rentals (URI)

Waste Management (WM)

Republic Industries (RSG)

IMPACT FOR REFINERS

Significant portions of U.S. refining capacity are offline following Category 4 Hurricane Harvey’s landfall on the middle Texas Coast and epic flooding in the Houston area, Wells Fargo’s Roger Read noted.

The analyst told investors that the majority of the refining units from Corpus Christi to Houston, Texas are offline and will remain so for much if not all of the coming week.

With approximately 25% of Gulf Coast refining capacity offline the impact of Hurricane Harvey is on par with prior major hurricane impacts on the Gulf Coast, he contended, adding that disruptions to normal activities may persist, crack spreads are likely to remain elevated and refining equities are likely to respond positively.

Nonetheless, Read noted that it is unclear if the flooding has damaged the refining units. Including condensate splitters, the analyst estimates 2.5-3.0 million barrels per day of refining capacity is offline, which represents just over one-quarter of Gulf Coast capacity and about 15% of U.S. refining capacity. Publicly traded companies in the refining space include Delek US (DK), HollyFrontier (HFC), Marathon Petroleum (MPC), Phillips 66 (PSX), Tesoro (TSO), Valero (VLO) and Western Refining (WNR).

PRICE ACTION

Fluor and Aecom are fractionally up in late morning trading, Quanta Services has gained almost 2%, and MasTec and CBI have risen about 1%. HollyFrontier has jumped almost 7%, while Marathon Petroleum and Philips 66 are up 1% and Valero has gained about 2%.

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