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Macquarie (MIC) Displays Bright Prospects, Risks Persist

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On Oct 13, we issued an updated research report on Macquarie Infrastructure Company (MIC - Free Report) .

In the past three months, this Zacks Rank #3 (Hold) stock has lost 15.6% against the industry’s growth of 11.2%.

Present Scenario

Macquarie has been benefiting from solid demand for storage of petroleum products over the past several months. Notably, the company’s average storage utilization at the International-Matex Tank Terminals (IMTT) segment was 94.6% in the second quarter. For 2020, it expects average storage utilization at the IMTT segment to be in the low-to-mid-90s percentage range. The company’s focus on the diversification of product along with its effort toward developing additional capacity and related infrastructure work is likely to support revenues in the quarters ahead.

Also, Macquarie currently has a significant number of growth projects in its pipeline, which is expected to strengthen the performance of its segments. Notably, the company expects to deploy $200-$225 million of growth capital this year, with about $180 million of that allocated to projects related with IMTT.

In addition, Macquarie remains committed to increasing wealth of shareholders through dividend payments. For instance, in the first six months of 2020, it paid out dividends worth $87 million. The dividend payments have been halted temporarily on account of the end-market uncertainties, owing to the coronavirus pandemic.

Low general aviation flight activity on account of the travel limitations implemented amid the pandemic will likely continue to affect the demand for products and services provided by the company’s Atlantic Aviation and MIC Hawaii segments. This is expected to have an adverse impact on its top-line performance in the upcoming quarter.

Further, Macquarie’s high-debt profile poses a concern. For instance, in six years (2014-2019), its long-term debt rose 4.7% (CAGR). The metric was $3,254 million at the end of the second quarter of 2020, reflecting a marginal increase sequentially. Also, its cash and cash equivalents of $874 million (exiting the second quarter) do not seem impressive, considering its high debt profile. Further increase in debt levels can raise the company’s financial obligations.

Stocks to Consider

Some better-ranked stocks from the same space are Crane Company (CR - Free Report) , Danaher Corporation (DHR - Free Report) and ITT Inc. (ITT - Free Report) . All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Crane delivered a positive earnings surprise of 5.16%, on average, in the trailing four quarters.

Danaher delivered a positive earnings surprise of 10.83%, on average, in the trailing four quarters.

ITT delivered a positive earnings surprise of 20.46%, on average, in the trailing four quarters.

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