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URS Corporation (URS - Analyst Report) reported solid first quarter results on May 9th, beating the Zacks Consensus Estimate in both earnings and revenue. As a result, analysts made significant upward revisions to their estimates for fiscal years 2012 and 2013, helping the stock achieve a Zacks #2 Rank (Buy).

In addition, since last March, this engineering and construction service provider has started paying a quarterly dividend that affirms a yield of 2.3%.

First Quarter Results

URS Corporation’s first quarter non-GAAP earnings came in at $1.12 per share, topping the Zacks Consensus Estimate by 7 cents, or 6%. It was a stellar 42% increase over the same quarter in 2011.

Total revenue was $2.36 billion, up 1.7% from $2.32 billion in the prior-year quarter. Revenue was aided by a strong performance from the federal sector business.

Operating income came in at $163.9 million, up 24.1% compared from $132.1 million in the year-ago quarter. This reflects an operating margin expansion of 125 basis points (bps) to 6.9%.

In the latest reported quarter, the Federal Services Division (FSD) reported revenue growth of 23.4% driven by contracts with the U.S. Army to manage the destruction of the U.S. chemical weapons stockpile and growth in the federal IT market through the acquisition of Apptis, which URS acquired on June 2, 2011. In addition, the contract to detect, secure and eliminate weapons of mass destruction at locations worldwide also added to the revenues.

Outlook Reaffirmed

URS Corporation reiterated its 2012 revenue guidance of $9.9 billion to $10.1 billion and earnings per share between $3.95 and $4.05. The company is confident of achieving its target for the year based on its strong position in core markets. However, delays in receipt of notices to proceed on several new contracts affected Infrastructure revenue in the quarter. Furthermore, uncertain conditions remain a matter of concern in a few markets.

Nevertheless, given the company’s confidence, analysts raised their estimates for 2012 and 2013. Specifically, the Zacks Consensus Estimate for 2012 increased 2% over the last 60 days to $4.07, implying a year-over-year jump of 15.3%. For 2013, the estimate moved up 1% to $4.44, implying a 9.1% increase over 2012.

As is evident from URS Corporation’s chart below, the Zacks Consensus Estimate has trended up over the past two quarters.

Dividend

URS Corporation initiated a quarterly dividend of $0.20 per share on February 27. The company has enough cash on its balance sheet to cover the dividend payout for several years. The current dividend payment affirms a yield of 2.3%.

Valuation Looks Compelling

Based on a 5-year EPS growth rate of 11.8%, URS Corporation’s PEG ratio comes to only 0.7, a 30% discount to the benchmark of 1 for a fairly priced stock.

Furthermore, URS Corporation currently trades at 9.0x its forward earnings, a 25.6% discount to 12.1x for the industry average and 32% to 13.2x for the S&P 500.

Headquartered in San Francisco, California, URS Corporation generates about 50% of its annual revenue from its Federal Services Division (FSD). This position was further strengthened last year when the company acquired Apptis Holdings, provider of IT services to the U.S. federal government. The addition of Apptis expands the capabilities of URS Corporation in the federal IT market. The company has a market cap. of $2.6 billion.

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