Project, engineering and technical services specialist John Wood Group PLC (LON:WG) (WG.L) has announced today that it has been awarded a $43 million contract by a large-cap midstream company. The contract is for the construction of 80 miles of steel pipeline in west Texas.
The project will serve to transport natural gas liquids (NGL) across Texas. The project is due to employ 200 people at peak construction. According to the company, the contract win strengthens its position as a major midstream player, with it having the largest and most vertically integrated pipeline project offering across North America.
In my view, the news is positive for John Wood Group. Although its shares have fallen by 2% today following the news, I believe that they could offer improving prospects.
In the next couple of financial years the company is forecast to post improving EPS. Next year, for instance, its EPS growth is forecast to be 22%. This means that the stock has a PEG ratio of around 0.7 at the moment, which suggests to me that it may offer a margin of safety.
In the near term, I’m expecting further volatility from the wider oil and gas sector. The oil price has experienced a significant fall in recent weeks, with Brent declining from $86 per barrel in early October to its current level of $61.
This suggests that investors remain cautious about the prospects for the industry following news that waivers will be applied to eight countries in respect of Iranian sanctions. Supply growth may therefore be more robust than was previously anticipated. With demand growth potentially coming under pressure as a result of an uncertain outlook for the world economy, shares such as John Wood Group may experience a volatile period.
In the long run, though, I’m upbeat about the stock’s prospects due in part to its valuation. Today’s news suggests to me that it is making progress with the delivery of its strategy.