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Growth & Income

Estimates have been surging for Primoris Services Corporation after the company delivered solid fourth quarter results. It is a Zacks #1 Rank (Strong Buy) stock.

The valuation picture looks reasonable with shares sporting a PEG ratio of just 0.7. It also pays a dividend that yields 0.7%.

Company Description

Primoris Services is a small cap specialty contractor and infrastructure company with over 99% of revenues coming from the United States.

It primarily operates in two segments: East Construction Services and West Construction Services. These segments specialize in a range of services that include designing, building/installing, replacing, repairing/rehabilitating and providing management services for construction related projects throughout the U.S.

The company has grown rapidly over the last couple years through both strong organic growth and acquisitions. And its domestic focus insulates it relatively well from the recession in Europe and slowdown in China.

Fourth Quarter Results

Primoris delivered an excellent "beat & raise" quarter on March 1. Earnings per share came in at 24 cents, beating the Zacks Consensus Estimate by 2 cents.

Revenue rose 12% to $373.1 million, well ahead of the Zacks Consensus Estimate of $306.0 million. This was driven by strong growth in both the East and Western Construction Services divisions.

The gross profit margin expanded 60 basis points to 13.7% of revenues. And operating income increased 11% over the same period.

Estimates Soaring

Primoris recorded a $1.16 billion backlog at the end of 2011, a 30% increase year-over-year. This prompted analysts to revise their estimates significantly higher for both 2012 and 2013, sending the stock to a Zacks #1 Rank (Strong Buy) stock.

PRIM: Primoris Services Corporation

The Zacks Consensus Estimate for 2012 is now $1.22, representing 7% EPS growth. The 2013 consensus estimate is currently $1.40, corresponding with 15% growth.

Valuation

As you can see in the Price & Consensus chart above, although consensus estimates have been soaring, the stock hasn't yet responded. This could present a great buying opportunity.

Shares trade at just 12.9x 2012 earnings, well below the industry median of 17.2x. And based on a consensus 5-year EPS growth rate of 18.1%, its PEG ratio is an attractive 0.7.

On top of this, the company pays a dividend that yields a solid 0.7%. With a solid balance sheet and strong cash flow, expect dividend increases as long as earnings continue to grow.

The Bottom Line

With earnings estimates surging and valuation at very reasonable levels, Primoris offers investors attractive upside potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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