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Bull of the Day: MasTec Inc (MTZ)

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When we think about “infrastructure,” we generally think of roads or bridges, sewers and water lines, the electrical grid and other utilities. The big physical accomplishments that take a lot of time and money to establish and maintain, but also afford us all the comforts and convenience of modern life, as well as facilitating commerce. Often overlooked, data connectivity is also an important component of infrastructure.

Fiber and Copper

MasTec Inc (MTZ - Free Report) is one of the industry’s established experts at designing, installing and maintaining all of those systems. They provide both copper and fiber optic infrastructure to companies of all sizes, as well as phone companies and municipalities.

Early on, when most communications happened over what had previously been traditional telephone line, most of that connectivity was comprised of copper cables. The advent of fiber-optic technology allowed bits of information to travel much more quickly (basically the speed of light) over long distances. Because a huge amount of the existing information infrastructure was already made from copper cable, most networks still include a combination of the two materials.

That information infrastructure needs to be continually upgraded and expanded to meet the demands of an increasingly interconnected and information-hungry world.

Electricity, Oil and Gas, Water

It also takes a lot of electricity to power all the systems we’ve come to rely on so heavily. There again, MasTec is in the business of providing exactly what the modern world needs. They currently have 44 projects in North America that are either under construction or already in operation, spanning Technology Deployment, Power Generation, Power Delivery, Oil and Gas Services and Communications.

MasTec’s power generation businesses include wind farms, solar energy facilities, alternative fuel plants (biofuels) and even traditional power plants (coal). They’ve got a foothold in all areas of traditional and renewable energy.

Just like data connectivity, the demand for clean and reliable energy continues to grow constantly.

The US Government

Though it has taken years to develop, Republican and Democratic leaders agreed in principal in April on a $2 trillion infrastructure plan. It’s one of the only major issues currently under consideration that has truly bipartisan support.

As trade battles drag on between the US and both China and Mexico and rounds of tariffs escalate, MasTec is largely insulated from the fracas because virtually all revenues are generated in the US and Canada and their reliance on imported materials that are subject to tariffs is minimal.

The Financials

In the most recent quarter, MasTec posted revenues of $1.52B, up 9% from the year-ago quarter while expenses increased only 5%. The result was net earnings of $0.57/share, beating the Zacks Consensus Estimate of $0.43/share by 35% and topping Q1 2018 results by 66%.

The company also increased full-year 2019 guidance from $4.34/share to $4.55/share, as well as raising second quarter earnings guidance to $1.11/share. Recent upward analyst revisions earn MasTec a Zacks Rank #1 (Strong Buy).

Share Price and Valuation

Thanks to 14 consecutive earnings beats, MasTec shares have more than tripled since 2016, from a low of $13.26/share to recent levels near $49/share.

Simply in terms of Price to Earnings valuation, MasTec trades at a 12-month forward P/E ratio of just 11.3X. Even if earnings only stay constant, just rising to match the S&P forward P/E ratio of 18.1X would mean a gain of basically 60%.

Technical expertise, nearly inexhaustible demand, an attractive valuation and a tailwind from government spending make MasTec a great addition to any portfolio.

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