Why Investors Should Hold on to MasTec (MTZ) Stock for Now
MasTec, Inc. MTZ is reaping benefits from significant amount of project awards across multiple segments, accretive acquisitions and solid construction spending. Moreover, its strong liquidity position and focus on protecting shareholder value are keeping it safe from the ongoing pandemic.
Shares of this Zacks Rank #3 (Hold) company have outperformed the industry in the past month, reflecting that investors are confident about its fundamentals and prospects. This outperformance was backed by MasTec’s impressive earnings surprise history and robust year-over-year performance. Notably, the company’s bottom line surpassed the Zacks Consensus Estimate in each of the trailing 14 quarters. The trend is likely to continue in the upcoming quarters as well, given upbeat backlog numbers.
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Although its solid backlog is a testimony to the fact that it will perform well in the remainder of 2020, some temporary project delays due to COVID-19 impacts may offset the tailwinds.
A Handful of Factors Influencing MasTec’s Performance
Strong Prospects: MasTec has a strong growth potential for 2020 and 2021, given a record backlog of $8.3 billion at March-end, up $367 million sequentially and $327 million year over year.
Segment-wise, backlog in Oil & Gas was up 2.4% year over year. The figure grew slightly from fourth-quarter 2019 despite lower oil prices. Notably, its current bookings mostly consist of gas pipeline work. In Power Generation and Industrial, backlog was a record $1.3 billion, up 82.5% year over year. In this segment, the company expects 30-50% revenue growth and more than 100 basis points margin improvement in 2020. It continues to see strong demand for renewables, with significant growth in solar activity and distributed generation.
Backlog in the Electric Transmission segment was up year over year. It anticipates revenues and earnings in 2020 to exceed 2019 levels, and believes that the segment is well positioned for 2021 and beyond. In Communications, it experiences continued expansion of fiber optic networks, investments in wireless network capacity and 5G-related work.
Strategic Acquisitions: MasTec consistently acquires assets and businesses in order to expand the existing business and market reach. During 2019, the company completed six acquisitions. One of them specializes in water infrastructure for pipeline companies and is included within the Oil and Gas segment. Four of them, including a wireline/fiber deployment construction contractor and a telecommunications company specializing in a broad range of end-to-end wireless telecommunications solutions, are added to the Communications segment. And the last one specializes in construction projects in the power industry, and is included in Power Generation and Industrial segment.
Trump’s $1-Trillion Infrastructure Bill: Trump is in favor of cashing in on the low interest rate environment that allows the U.S. government to borrow at a minimal rate. Therefore, he continues to push ahead for his long-standing agenda of spending almost $1 trillion on infrastructure, including roads, bridges, highways and railways, along with 5G wireless infrastructure and rural broadband. The proposed bill will be beneficial for MasTec and other industry players like Dycom Industries, Inc. DY, Great Lakes Dredge & Dock Corporation GLDD and EMCOR Group, Inc. EME.
Meanwhile, May public construction spending data — up 1.2% from the prior month — and solid job growth are equally encouraging.
Certain Headwinds That May Hinder Future Performance
Although the company has not been much impacted by the COVID-19 pandemic, yet it may experience project delays and timing issues. The biggest risks to its guidance are associated with governmental permitting and crew social distancing mitigation, and the impact they may have on project schedules, along with any potential project delays.
MasTec faces execution risk. The company’s failure to properly manage projects or project delays could result in additional costs or claims. Also, its Oil & Gas pipeline segment’s top line has been negatively impacted over the last few quarters due to regulatory-imposed work delays on a few large project activities. Notably, regulatory disruptions in selected long-haul pipeline construction activities resulted in revenue decline in the Oil & Gas segment in 2019.
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EMCOR Group, Inc. (EME) : Free Stock Analysis Report
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