For Immediate Release
Chicago, IL – September 14, 2017 – Zacks Equity Research MasTec (NYSE: (MTZ - Free Report) – Free Report)as the Bull of the Day, Dycom Industries (NYSE: (DY - Free Report) – Free Report)as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Nordstrom (NYSE: (JWN - Free Report) – Free Report), KKR (NYSE: (KKR - Free Report) – Free Report) and Apollo (NYSE: (APO - Free Report) – Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
MasTec (NYSE: (MTZ - Free Report) – Free Report)is a $3.3 billion engineering and construction (E&C) company specializing in energy and telecom sector projects. Another strong quarterly report and raised guidance in early August has put the stock in the upper echelon of the Zacks Rank once again.
I have chosen MasTec for Bull of the Day again this month because the stock just absorbed a lot of uncertainty surrounding the Gulf hurricanes, where both energy projects in Houston and telecom projects in Florida could have been impacted more severely.
Now that the damage is being assessed, it's seen that rebuilding efforts can now be a boost for MasTec.
Analyst Optimism Rises After the Storms
I read a good report from KeyBanc analysts this week that the impact of the Gulf storms is incrementally positive for MasTec and other telecom E&C firms, especially in terms of heavy cable and wireline projects.
And on September 12, Deutsche Bank upgraded MasTec from Hold to Buy with a price target of $50 following their meeting with the CEO and channel checks with competitors and suppliers.
Analyst Chad Dillard said concerns about "peak" energy pipeline and slowing AT&T capex had led to recent underperformance in the stock (see my notes below on "Why Can't MTZ Get Through $47?" for more on that). Dillard believes these overhangs are overblown and provide an attractive entry point in the stock.
The analyst sees several catalysts ahead in the technology fiber optic and 5G buildout, FirstNet, and a rebound in pipeline/transmission projects. These could all contribute to better than expected earnings growth into 2018.
Finally, the Deutsche Bank view is that MTZ shares carry a 2:1 positive risk/reward from $41. This strong view caused MTZ shares to pop 5.5% on the day of their research report.
Highlights of Q2 and Guidance
MasTec delivered a 60% EPS beat generated by much higher-than-expected volumes of Oil & Gas work and strong execution. The company also spoke very positively about their pipeline work for 2018, with a higher backlog than it had at this time last year.
Management increased full year guidance to $6.0 billion in revenues from $5.7 billion previously, and adjusted EPS to $2.73 from $2.45. There was some "pull forward" for the Q2 beat as some of the Rover Pipeline project in West Virginia has been give the all-clear by WV environmental authorities again.
But as analysts at investment bank Stifel Nicolaus noted "the company now has open spread capacity that it could potentially fill in 4Q. This would represent potential upside to our forecast." The bank raised its EPS estimates and their price target on MasTec from $53 to $55.50.
As estimates stand right now, MasTec looks poised to grow the top line by over 16% this year and the bottom one by 45%. Next year's revenues are projected to grow by 6% to $6.34 billion.
Bear of the Day:
Dycom Industries (NYSE: (DY - Free Report) – Free Report)is a $2.4 billion provider of specialty engineering & construction (E&C) services to telecom providers and of construction and maintenance services to electric utilities.
On August 30, Dycom reported a small earnings beat in its fourth-quarter fiscal 2017 but the bottom line came in 10.4% lower than the year-ago figure, dragged by weak contract revenues.
Dycom’s fiscal fourth-quarter contract revenues came in at $780.2 million, down 0.8% year over year. The top line also missed the Zacks Consensus Estimate of $799 million, and came at the lower end of the company’s projected range of $780–$810 million.
Extensive deployment of 1-Gigabyte wireline networks by major customers and expanding core market share fueled top-line growth during the quarter. This was somewhat offset by a near term moderation by a major customer, possibly AT&T. Organic revenues grew 4.6% year over year.
For the fiscal year, Dycom reported contract revenues of $3.1 billion, up 14.1% year over year. Acquisitions contributed $19.3 million, supplementing the revenue stream.
Following the report, analysts have slashed earnings estimates for the current fiscal year (ending July 2018) and the next.
The current year's EPS consensus dropped from $5.29 to $4.26, representing 19% negative "growth."
Next year's profit projection likewise fell 20% from $6.71 to $5.35.
The Headwinds for Pure Telecom Contractors
Dycom expects that its gross margins will be pressured in the upcoming quarter due to expected adverse mix of work activity, lower revenues and high costs associated with initiation of customer programs. Costs as a percentage of revenues are also expected to increase year over year, putting pressure on operating margins.
The company’s business remains highly vulnerable to risks associated with the U.S. telecommunications industry. Presently, the space is facing intense pricing competition.
Severe spectrum crunch, coupled with gradual smartphone and tablet adoption, is compelling wireless operators to seek other options for raising revenues.
The telecommunications industry is highly dynamic in nature. It continues to experience rapid technological, structural and competitive changes and may reduce service requirements from Dycom, thereby affecting its financial performance.
With the rise in operating expenses, poor contribution from acquired businesses, and pronounced seasonal fluctuations, analysts believe growth in the upcoming quarters will face multiple headwinds.
Nordstrom Stock Soars on Renewed Buyout Talk
Shares of Nordstrom (NYSE: JWN – Free Report) climbed on Wednesday after reports surfaced that the department store chain would once again consider taking on a private equity client in order to fund a buyout.
CNBC first reported that Nordstrom family members are close to picking an investment firm to help the family facilitate a buyout of the publicly traded company, of which they own roughly 31%. In the potential deal, Leonard Green & Partners would supply roughly $1 billion to the Nordstrom family to help fund a deal to take the company private.
Nordstrom’s shares popped 6.1% premarket and have since surged over 6.02% in morning trading Wednesday. Still, the historic U.S. department store sits almost $15 below its 52-week high of $62.83 per share.
The company first announced it would consider taking the company private in June. Nordstrom’s statement noted that the family was looking into the possibility of acquiring 100% of JWN’s outstanding shares of common stock.
Talk surrounding Nordstrom’s possible private buyout continued in early August, when it was reported that the family was in talks with KKR (NYSE: KKR – Free Report), Apollo (NYSE: APO – Free Report) and Leonard Green. Renewed buyout speculation seems to have piqued investors’ interests on Wednesday, but the privet equity deal has not been finalized.
The department store giant with a market cap of roughly $7.9 billion is also reportedly in talks with banks to raise around $8 billion in debt in order to completely finance the deal to go private.
Nordstrom has seen its stock price fluctuate since the beginning of the year as it tries to navigate the changing retail waters. Now, it seems that the Nordstrom family thinks that it would be able to make changes and investments that help the chain adapt without having to worry about negative, short-term shareholder reactions.
The renewed energy to go private comes only two days after the company announced it will debut a new concept store in California in early October. Branded “Nordstrom Local,” the company won’t even sell clothes at the new store, opting instead to focus on personal styling and consultations (also read: Nordstrom's New Inventory-Free Concept is Risky--But Just May Work).
Nordstrom wants to experiment and evolve in the dynamic retail landscape, where these new age retail ideas have started to catch on. Yet, shares of Nordstrom tanked around 5% on Monday after the company made the Nordstrom Local announcement.
Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
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