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Why Is MasTec (MTZ) Up 23.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for MasTec (MTZ - Free Report) . Shares have added about 23.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is MasTec due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

MasTec Q1 Earnings & Revenues Top Estimates

MasTec, Inc. reported impressive results in first-quarter 2020. Despite COVID-19 impacts, both the top and bottom lines surpassed the Zacks Consensus Estimate, and exceeded expectations on the back of solid segmental performance (barring Oil and Gas).

Although the recent economic slowdown is impacting the overall industry, the company believes that the strong balance sheet and solid backlog position it well in this unprecedented period.

Jose Mas, MasTec's chief executive officer, said, “We expect continued volatility and caution as the world begins to reopen and demand recovers. In the meantime, we enjoy significant backlog and have strong visibility both for the remainder of 2020 and 2021."

Inside the Headlines

MasTec reported adjusted earnings per share of 60 cents, which surpassed the Zacks Consensus Estimate of 45 cents by 33.3% and exceeded the company’s expectation by 25%. However, the metric fell 3.2% on a year-over-year basis.

Revenues of $1.42 billion topped the consensus mark of $1.31 billion by 8.1% and surpassed the company’s projection by 9.2%. However, the metric fell 6.7% year over year.

On fourth-quarter 2019 earnings call, MasTec noted that all results — effective first-quarter 2020 — will be shown under a new presentation basis. At the end of the first quarter, the company reported 18-month backlog of $8.3 billion, up 4% from the last year.

Segment Update

Revenues from Communications grew 5.1% year over year to $644.1 million. Adjusted EBITDA margin, however, surged 50 basis points (bps) to 7.9%. Electrical Transmission segment’s revenues came in at $128.1 million, up 35% from the year-ago quarter. Adjusted EBITDA margin came in at 6.5%, up 250 bps from the year-ago period.

Power Generation and Industrial’s revenues surged a notable 51.2% year over year to $286.3 million. Adjusted EBITDA margin was in line with the year-ago figure of 1.7%. Revenues from the Oil and Gas segment declined 42.2% from a year ago to $359.1 million. Nonetheless, adjusted EBITDA margin improved an impressive 340 bps to 20.7%.

Operational Update

General and administrative expenses, as a percentage of revenues, increased 120 bps from the prior-year quarter to 6%. The company reported adjusted EBITDA of $118 million, down 15.8% from the prior-year period. Adjusted EBITDA margin also contracted 90 bps to 8.3%.

Financial Details

As of Mar 31, 2020, MasTec had cash and cash equivalents of $71.7 million compared with $43.2 million at first quarter 2019-end. The company provided $230.3 million of cash from operating activities in the first quarter versus $46.8 million cash used in the comparable year-ago period.

At the end of the quarter, it had approximately $950 million in liquidity, including cash and availability under the credit facility.

2020 Guidance Lowered

MasTec noted that most of its construction services have been deemed essential under state and local pandemic mitigation orders. The company’s segments remain operational even in the face of the pandemic. However, it anticipates the business to be impacted by COVID-19 in the remaining quarters of 2020. The company may witness lost productivity from governmental permitting delays, reduced crew productivity due to stay-at-home orders, lower levels of overhead cost absorption and delay or shutdown of projects.

Based on the current market conditions, MasTec updated its 2020 guidance. Revenues are now expected within $7.3-$7.7 billion compared with $8 billion projected earlier. Adjusted EBITDA is projected within $775-$825 million versus $900 million expected earlier. This indicates a decline from adjusted EBITDA of $843.2 million in 2019. Adjusted EBITDA margin is likely to be in the range of 10.6-10.7%, indicating fall from 11.7% recorded in prior year. Adjusted earnings are anticipated within $4.50-$5.00 per share (versus $5.63 expected earlier). Adjusted earnings in 2019 were $5.46 per share.

Second-Quarter View

MasTec expects revenues between $1.5 and $1.6 billion. Adjusted EBITDA is expected within $150-$160 million, with margin projection of 10%. Adjusted EBITDA in the year-ago period was $240.7 million, with margin of 12.4%. Adjusted earnings per share are anticipated within 78-89 cents, suggesting a significant decline from the year-ago figure of $1.65.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 5.2% due to these changes.

VGM Scores

At this time, MasTec has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, MasTec has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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