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Why Is MasTec (MTZ) Down 8.3% Since the Last Earnings Report?

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About a month has gone by since the last earnings report for MasTec, Inc. (MTZ - Free Report) . Shares have lost about 8.3% in that time frame, underperforming the market.

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

MasTec Tops Q2 Earnings on Record Oil & Gas Projects

MasTec reported record second-quarter 2017 adjusted earnings per share of $1.03, comfortably beating the Zacks Consensus Estimate of 66 cents. Earnings also surged an impressive 186% year over year. The better-than-expected performance was particularly led by record levels of Oil & Gas project activity.

Including one-time items, MasTec reported earnings of $0.99 per share compared to $0.30 reported in the prior-year quarter. The prior-year quarter included restructuring charges and income tax adjustments, while the reported quarter did not have any such adjustments.

Operational Update

MasTec’s net sales surged 53% year over year to record $1.89 billion in the quarter, outpacing the Zacks Consensus Estimate of $1.49 billion. Oil and Gas segment’s revenues in the reported quarter soared a whopping 168% to $1.1 billion over last year's second-quarter level. The Electrical Transmission segment followed with a 1% rise to $96.6 million in revenues. The Communication segment’s revenues remained flat year over year at $592 million. Revenues in the Power Generation and Industrial segment plunged 49.3% to $60.7 million.

Cost of sales in the quarter jumped 52% year over year to $1.63 billion. Gross profit was up 60.7% to $263.8 million from $164 million in the prior-year quarter. Gross margin expanded 70 basis points to 14% in the quarter. General and administrative expenses flared up 4.4% to $70.8 million. MasTec reported operating profit of $147.6 million in the quarter, a substantial improvement from $55.7 million in the year-earlier quarter. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved to $202 million compared with $104 million in the year-ago quarter.

Financial Details

MasTec reported cash and cash equivalents of $18.2 million as of Jun 30, 2017, considerably up from $8.8 million ras of Jun 30, 2016. The company recorded cash used from operations of $88 million for the six-month period ended Jun 30, 2017, compared with an inflow of $28.5 million recorded in the prior-year quarter. Long-term debt was $1,314 million as of Jun 30, 2017, compared with $961 million as of Dec 31, 2016.

MasTec recently completed two acquisitions, including a Texas-based provider of heavy civil, water, sewer and drainage systems infrastructure for private developers, state and local municipalities, and a leasing company of Oil & Gas specialty pipeline equipment.

Guidance

MasTec believes the acquisition of the Oil & Gas specialty equipment provider will bring down its overall equipment costs and provide competitive advantage during the current multi-year cycle of significant Oil & Gas pipeline project activity. Additionally, the geographic expansion of MasTec’s heavy civil operations, as well as entry into the water, sewer and drainage systems infrastructure market operations will provide an exciting platform to benefit from increasing demand trends in this market.

Buoyed by these factors, MasTec raised its 2017 guidance to new record levels. The company currently estimates 2017 annual revenue of approximately $6 billion, up from the prior guidance of $5.7 billion. The company now guides adjusted earnings per share of $2.73, up from the prior guidance of $2.45 for the full year. This marks a 44% increase over 2016. Additionally, MasTec estimates adjusted EBITDA to jump 30% to $620 million, up from the prior projection of $575 million.

Further, for third-quarter 2017, MasTec guided revenues to be roughly $1.65 billion. The company anticipates adjusted EBITDA of around $167 million and adjusted earnings per share of 73 cents.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to two lower.

MasTec, Inc. Price and Consensus

 

MasTec, Inc. Price and Consensus | MasTec, Inc. Quote

VGM Scores

At this time, MasTec's stock has a poor Growth Score of F, however its Momentum is doing a bit better with a D. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Our style scores indicate that the stock is suitable for value investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy).




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