Starboard’s Push To Unlock Fluor’s NuScale Value

Have you ever wondered what happens when a savvy investor spots a hidden gem within a company’s portfolio? It’s like finding a diamond in a coal mine, and that’s exactly what’s unfolding with Fluor Corporation and its stake in NuScale Power. I’ve been following the market for years, and few stories capture the imagination quite like an activist investor shaking things up to unlock value. Let’s dive into how Starboard Value is pushing Fluor to capitalize on its nuclear tech investment, and why this could be a game-changer for shareholders.

The Big Picture: Fluor’s Transformation and Starboard’s Vision

Fluor Corporation, a global leader in engineering, procurement, construction, and project management, has been quietly reshaping itself into a powerhouse. But there’s a twist: its 39% stake in NuScale Power, a trailblazer in small modular reactor (SMR) technology, might just be the key to unlocking massive value. Starboard Value, a seasoned activist investor with a knack for spotting undervalued assets, has taken a nearly 5% stake in Fluor and is urging the company to rethink how it handles this nuclear ace up its sleeve.

Why does this matter? Because NuScale’s valuation, pegged at roughly $4.3 billion pre-tax, represents more than half of Fluor’s entire enterprise value. If Fluor can smartly monetize this stake, it could turbocharge its stock price and reshape its future. Let’s break down the story, piece by piece, to see why this is such a big deal.

Fluor’s Turnaround: From Risky Bets to Steady Growth

Fluor wasn’t always the darling of investors. Back in 2020, its stock price plummeted to a jaw-dropping $4 per share. The culprit? A cutthroat engineering and construction market where companies, including Fluor, chased growth with risky, low-margin contracts. These lump-sum contracts often led to cost overruns and thin profits, dragging many players into financial trouble—or worse, bankruptcy.

Enter David Constable, who took the helm as CEO in 2021. His strategy was a breath of fresh air: pivot to lower-risk reimbursable projects. This shift slashed Fluor’s exposure to loss-making legacy projects from $1.8 billion to just $558 million. At the same time, Fluor doubled down on high-growth markets like advanced technologies, life sciences, and infrastructure through its urban solutions segment, which now accounts for 73% of its backlog compared to just 37% in 2021.

Fluor’s transformation under Constable has been nothing short of remarkable, turning a struggling giant into a lean, focused player.

– Industry analyst

The result? Fluor’s EBITDA has grown at a 14% compound annual growth rate from 2021 to 2024, with analysts projecting a solid 9% CAGR through 2028. In a market where many competitors have bowed out, Fluor now operates in a near-duopoly alongside Bechtel, serving a $918 billion global construction market. That’s a comeback story worth celebrating.

NuScale: The Nuclear Wildcard

Here’s where things get really interesting. Over a decade ago, Fluor made a $30 million bet on NuScale Power, a company developing small modular reactors. These compact, scalable nuclear reactors are designed to meet the world’s growing energy demands, especially with the rise of power-hungry data centers. NuScale has since become the first U.S.-listed SMR company with design approval from the U.S. Nuclear Regulatory Commission, positioning it as a leader in the clean energy revolution.

That early investment? It’s now worth $4.3 billion pre-tax, or about $3.4 billion after taxes. To put that in perspective, Fluor’s total enterprise value is $6.7 billion. If you strip out the NuScale stake, Fluor’s core business is valued at a mere $3.3 billion, trading at a dirt-cheap 4.6x EBITDA compared to peers at 6x to 13x. In my opinion, that’s a screaming bargain for a company with Fluor’s track record and market position.

So, why hasn’t the market caught on? Perhaps it’s because Fluor’s NuScale stake is tucked away like a hidden treasure, not fully reflected in its stock price. That’s where Starboard steps in.

Starboard’s Playbook: Unlocking Hidden Value

Starboard Value isn’t your average investor. With a track record of 162 activist campaigns and an average return of 21.13% (compared to 14.24% for the Russell 2000), they’re masters at spotting undervalued assets and pushing companies to act. Their campaigns in the industrial sector have been particularly lucrative, averaging a 50.55% return. Clearly, they know how to get results.

In Fluor’s case, Starboard sees the NuScale stake as a golden opportunity. Their plan? Unlock its value through strategies like:

• Open-market sales: Selling Fluor’s NuScale shares directly to fund a massive share buyback.
• Exchange offer: Allowing Fluor shareholders to swap their shares for NuScale stock.
• Mandatory exchangeable bond: A creative financial move to distribute NuScale shares to investors.
• Tax-free spinoff: Spinning off NuScale entirely, letting Fluor shareholders retain exposure to its growth.

Each option could be a win for shareholders. A share buyback, for instance, would boost earnings per share by reducing the number of outstanding shares, especially at Fluor’s currently low valuation. A spinoff, on the other hand, could let the market revalue Fluor’s core business at a higher multiple, potentially yielding 200% upside if it maintains its 8.9x EBITDA multiple.

Starboard’s involvement often signals big changes—and big returns—for shareholders.

– Financial strategist

What’s more, Starboard’s history with Fluor’s executive chairman, David Constable, adds a layer of intrigue. Back in 2019, Starboard worked with Constable during a highly successful campaign at AECOM, another construction giant, which returned 147% compared to the Russell 2000’s 26%. That prior collaboration suggests a constructive relationship, which could make this campaign smoother and more effective.

Why Nuclear Energy Is the Future

Let’s zoom out for a moment. Why is NuScale such a big deal? The world’s energy needs are skyrocketing, driven by the data center boom and the push for clean energy. Traditional power sources like coal and gas are falling out of favor, while renewables like solar and wind can’t always provide the consistent power needed for 24/7 operations. Enter small modular reactors, which offer a safe, scalable, and low-carbon solution.

NuScale’s SMRs are particularly exciting because they’re smaller and cheaper to build than traditional nuclear plants. They can be deployed in remote areas or paired with data centers, making them a perfect fit for the tech-driven future. As one industry expert put it:

SMRs are poised to be a cornerstone of the clean energy transition, especially for high-demand sectors like tech.

– Energy market analyst

Fluor’s early bet on NuScale was a stroke of genius, and now it’s paying off in spades. But the question remains: how can Fluor best capitalize on this asset without losing its core focus?

The Numbers: What’s at Stake?

Let’s crunch some numbers to see why Starboard is so excited. Fluor’s enterprise value is $6.7 billion, but its NuScale stake alone is worth $4.3 billion. If you subtract that, the core business is valued at just $3.3 billion, or 4.6x EBITDA. Compare that to Fluor’s peers:

This gap is striking. If Fluor’s core business were valued at even the lower end of its peer range (6x EBITDA), it would be worth significantly more. A spinoff or sale of the NuScale stake could force the market to re-evaluate Fluor’s core operations, potentially doubling its stock price.

In my experience, markets often undervalue complex businesses like Fluor because investors struggle to parse their diverse assets. Starboard’s push could be the catalyst to shine a spotlight on Fluor’s true worth.

What Could Go Wrong?

No investment story is without risks, and this one’s no exception. Monetizing the NuScale stake could face hurdles, like:

1. Market volatility: Selling NuScale shares in a choppy market could depress their value.
2. Tax implications: While a spinoff could be tax-free, other options might trigger hefty tax bills.
3. Execution risks: Fluor’s core business still faces competition, and any missteps could erode gains.

That said, Starboard’s track record suggests they’re adept at navigating these challenges. Their prior success with AECOM, for instance, shows they can handle complex restructurings while delivering outsized returns.

What’s Next for Fluor and Investors?

So, where does this leave us? Starboard’s involvement is a wake-up call for Fluor’s management and shareholders. The NuScale stake is a massive opportunity, and whether Fluor chooses a sale, spinoff, or another creative strategy, the potential upside is hard to ignore. For investors, this could be a chance to ride the wave of a revalued Fluor and a booming nuclear energy sector.

Personally, I find Starboard’s approach refreshing. Too often, companies sit on undervalued assets without a clear plan to unlock their potential. With Constable’s leadership and Starboard’s expertise, Fluor seems poised for a breakout moment. But the real question is: will they seize this opportunity, or will it slip through their fingers?

For now, all eyes are on Fluor. If Starboard’s past is any guide, this could be one of the most exciting investment stories of the year. Stay tuned—this is one to watch.