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Why You Should Buy Primoris (PRIM) Despite Stock Decline

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Primoris Services Corporation (PRIM - Free Report) shares tanked 18.3% in a year compared with the Zacks Building Products - Heavy Construction industry’s 2.3% decline. The downtrend in pricing reflects the ongoing industry-wide challenges.

Defying these headwinds, this Zacks Rank #2 (Buy) company is banking on solid project execution, a robust backlog level and a contract-winning spree in both the Energy/Renewables and Utilities segments. Also, strategic acquisitions and operational excellence bode well.

Earnings estimates for the current quarter and year have moved up more than 18% and 4%, respectively, in the past 60 days. The solid bottom-line growth projection reflects analysts’ optimism and justifies its “Buy” recommendation.

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Let’s delve deeper into the factors that support this specialty contractor company.

Continuous Contract Flow, a Boon

Primoris has been reaping benefits from strong project execution in the Energy/Renewables and Utilities segments. In early September, its Pipeline Services unit secured a contract for the construction of 60 miles of pipeline in Texas. The contract, valued at $120 million, is expected to be completed in the second quarter of 2023.

In August, Primoris received a solar project contract worth $270 million. The contract was received by the Energy/Renewables segment. The project will add approximately 500-3,900 megawatts of solar power projects, which the company currently has under construction.

In July, it received a heavy civil project of more than $170 million from the Texas Department of Transportation. In June, the Energy/Renewables segment won a solar project contract worth $260 million.

Robust Backlog to Drive Revenues

Primoris is poised to gain from its solid backlog position across businesses. As of Jun 30, 2022, the company reported a record backlog of $4.572 billion, representing an increase of 59% from a year ago. The company expects to generate 76% of the total backlog as revenues during the next four quarters. This comprises a backlog of 100% in Utilities, 62% in Energy/Renewables and 100% in Pipeline.

Acquisitions to Expand Business

Primoris rides high on a solid acquisition strategy. On Aug 1, it completed the buyout of PLH Group, Inc. in an all-cash transaction of $470 million.

As a critical infrastructure services provider to the utility, renewables and other related energy markets, Primoris will now enjoy almost double the strength in the Power Delivery business and a rise in its Utilities segment revenue growth of more than 50% on a pro forma basis. It will also solidify Power Delivery presence in the five fastest-growing states to create more turnkey opportunities in the future.

Moreover, the buyout accelerates PRIM’s ongoing portfolio transition toward higher-growth, higher-margin markets and recurring Master Service Agreement ("MSA") revenues. It expects to witness double-digit earnings per share growth and material cost synergies within the next 12 months. It anticipates annual cost savings of at least $10 million in the next two years post-acquisition. On a pro forma basis, Primoris projects net debt to adjusted EBITDA of approximately 3.3x for the last 12 months, with targeted de-levering to 2.0X by 2024.

On Mar 1, it acquired Alberta Screw Piles, Ltd. for a cash price of approximately $4.1 million. Earlier, on Jan 15, 2021, it acquired Future Infrastructure Holdings, LLC for approximately $604.7 million.

Solid Cost Management

Over the last few quarters, the company has been undertaking cost-control measures to boost profitability. Moreover, during the second quarter, it reduced SG&A expenses to nearly 5.8% of revenues compared with 6.6% in the prior-year period. Solid cost management helped it to generate higher profits.

The company is targeting SG&A expense, as a percentage of revenues, in the low-to-mid 6% range for 2022.

Other Top-Ranked Stocks in the Construction Sector

Arcosa, Inc. (ACA - Free Report) , currently sporting a Zacks Rank #1, is a manufacturer of infrastructure-related products and services, serving construction, energy and transportation markets.

ACA’s expected earnings growth rate for 2022 is 19.7%. The Zacks Consensus Estimate for current-year earnings has improved to $2.31 per share from $2.08 over the past 30 days.

United Rentals, Inc. (URI - Free Report) , presently sporting a Zacks Rank #1, has been benefiting from a broad-based recovery of activity across its end markets served. Higher margins from rental revenues and used equipment sales are added benefits.

The Zacks Consensus Estimate for URI’s 2022 earnings rose to $31.73 per share from $31.66 in the past 30 days. The estimated figure suggests 43.8% year-over-year growth.

Dycom Industries, Inc. (DY - Free Report) is benefiting from the higher demand for network bandwidth and mobile broadband, extended geography, proficient program management and network planning services. Dycom expects considerable opportunities across a broad array of customers.

Dycom’s, currently sports a Zacks Rank #1, earnings for fiscal 2023 are expected to grow 142.1%. The Zacks Consensus Estimate for DY’s 2022 earnings rose to $3.68 per share from $3.28 in the past 30 days.

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