Customers of engineering and construction companies should soon begin awarding contracts as credit eases and the cost of oil and raw materials stabilizes, an analyst said Thursday as he upgraded the stocks of two companies.
Sterne Agee analyst Chase Jacobson said in a client note that long-term demand driven by global inflation and higher commodity prices "will lead to a return of a more normal demand environment" later in the second half of the year for engineering and construction companies.
Many customers of engineering and construction firms deferred project awards in the second half of 2008 due to rising commodity prices, tighter credit and a global decline in demand, he said.
Those customers "have taken a 'wait-and-see approach' through the first half of 2009" to take advantage of significantly lower raw materials costs before awarding projects, he said.
As credit eases and the cost of commodities and raw material costs have stabilized, "we believe customers are likely to 'turn the switch on' in terms of awarding large long-term projects over the next six to 12 months."
The performance of the sector, which builds refineries, pipelines and other key accessories for energy projects, is closely linked to oil and natural gas prices.