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MasTec (MTZ - Free Report) is a $3.3 billion engineering and construction (E&C) company specializing in energy and telecom sector projects. Another strong quarterly report and raised guidance in early August has put the stock in the upper echelon of the Zacks Rank once again.

I have chosen MasTec for Bull of the Day again this month because the stock just absorbed a lot of uncertainty surrounding the Gulf hurricanes, where both energy projects in Houston and telecom projects in Florida could have been impacted more severely.

Now that the damage is being assessed, it's seen that rebuilding efforts can now be a boost for MasTec.

Analyst Optimism Rises After the Storms

I read a good report from KeyBanc analysts this week that the impact of the Gulf storms is incrementally positive for MasTec and other telecom E&C firms, especially in terms of heavy cable and wireline projects.

And on September 12, Deutsche Bank upgraded MasTec from Hold to Buy with a price target of $50 following their meeting with the CEO and channel checks with competitors and suppliers.
 
Analyst Chad Dillard said concerns about "peak" energy pipeline and slowing AT&T capex had led to recent underperformance in the stock (see my notes below on "Why Can't MTZ Get Through $47?" for more on that). Dillard believes these overhangs are overblown and provide an attractive entry point in the stock.
 
The analyst sees several catalysts ahead in the technology fiber optic and 5G buildout, FirstNet, and a rebound in pipeline/transmission projects. These could all contribute to better than expected earnings growth into 2018.
 
Finally, the Deutsche Bank view is that MTZ shares carry a 2:1 positive risk/reward from $41. This strong view caused MTZ shares to pop 5.5% on the day of their research report.
 
Highlights of Q2 and Guidance

MasTec delivered a 60% EPS beat generated by much higher-than-expected volumes of Oil & Gas work and strong execution. The company also spoke very positively about their pipeline work for 2018, with a higher backlog than it had at this time last year.

Management increased full year guidance to $6.0 billion in revenues from $5.7 billion previously, and adjusted EPS to $2.73 from $2.45. There was some "pull forward" for the Q2 beat as some of the Rover Pipeline project in West Virginia has been give the all-clear by WV environmental authorities again.

But as analysts at investment bank Stifel Nicolaus noted "the company now has open spread capacity that it could potentially fill in 4Q. This would represent potential upside to our forecast." The bank raised its EPS estimates and their price target on MasTec from $53 to $55.50.

As estimates stand right now, MasTec looks poised to grow the top line by over 16% this year and the bottom one by 45%. Next year's revenues are projected to grow by 6% to $6.34 billion.

A Great Year, Muted Expectations for the Next One

One investor concern might be that EPS estimates have not risen as dramatically for next year, currently showing a flat performance in the Zacks consensus. But this is most likely an effect of the relative uncertainty surrounding many of these major energy projects which represent 40-45% of MTZ business.

A generally positive market in telecom E&C projects from major builders like AT&T and Verizon also encourages analysts about the MasTech outlook.

But it's the energy sector that keeps them talking right now. FBR Capital raised their price target on MTZ to $66 from $57 this month. Here's what StreetInsider.com reported...

FBR Capital analyst, Alex Rygiel, reiterated his Outperform rating on MTZ shares and raised his price target to $66 from $57 after the company posted exceptional 2Q results. The analyst believes backlog continues to provide good visibility and is expected to grow through the rest of the year.

The analyst believes the Oil & Gas segment will be particularly strong through year end but management is even more positive on the 2018 outlook due to the current backlog, pipeline of projects and solid industry drivers across all of its segments.

Why Can't MTZ Get Through $47?

With the old price targets for MTZ shares already in the mid-$50s, an obvious question would be about why the struggle so much to get anywhere near $50.

As a holder of MTZ shares, I have watched twice on the past two earnings reports how the stock rallies above $47 into the quarter and gets rejected all the way back to $40.

One obvious theory is that the stock has had a terrific run in the past 18 months, outperforming its benchmarks like the Industrial Sector ETF (XLI) and several E&C peers like Dycom (DY - Free Report) , Jacobs (JEC - Free Report) , and Quanta (PWR - Free Report) .

But much of this outperformance is justified when you look at the delivery of earnings surprises and raised guidance/estimates in the past several quarters. Here's the proprietary Zacks Price & Consensus chart shown with EPS surprises where the length of the arrow indicates the magnitude of the surprise...



While MasTec may have uncertainty that drives some large investors to take profits below $50, I think MTZ shares have a good shot to rally from the low $40s for one more shot at that mark, especially as visibility around the industries of it largest customers become clearer.

Disclosure: I own MTZ shares for the Zacks TAZR Trader.

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