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MasTec (MTZ) Rides on Solid Backlog Amid Stiff Competition

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Strong backlog position, accretive acquisitions as well as growth prospects across the segments bode well for MasTec, Inc. (MTZ - Free Report) . Benefits from the tax reform, major expansion in 5G and FirstNet, fiber expansion, along with strong pipeline business in the Oil & Gas segment continue to be major growth catalysts.

However, a highly competitive and fragmented industry, project delays and ramp-up costs associated with the Communications segment raise concerns.

Catalyst Driving Growth

MasTec is poised to gain from significant number of project awards across multiple segments. As of Jun 30, 2018, the company achieved a record 18-month backlog of $7.7 billion, reflecting an increase of 47% from the prior-year quarter end. This marks the third consecutive quarter of record total backlog, depicting significantly strong demand in its end markets for 2018, 2019 and beyond.

Notably, MasTec expects 2018 annual revenues to be at record levels of $6.9 billion, driven by Communications, Transmission and Power Generation segments. Also, it increased its 2018 adjusted EBITDA and EPS expectation to $708 million and $3.67, respectively, from $700 million and $3.65 expected earlier. The recently passed Tax Cuts and Jobs Act will be a catalyst for MasTec. The company’s adjusted tax rate will be around 29.5% of pre-tax earnings in 2018 compared with 39% adjusted rate in 2017.

Moreover, MasTec, which shares space in the Zacks Building Products - Heavy Construction industry with EMCOR Group, Inc. (EME - Free Report) , Dycom Industries, Inc. (DY - Free Report) and North American Construction Group Ltd. (NOA - Free Report) , is highly focused on its acquisition strategy. During the second quarter of 2018, MasTec acquired Cash Construction, a TX-based infrastructure construction company that will provide exposure to the growing water market. Also, it acquired a leasing company of Oil & Gas specialty pipeline equipment. This buyout will provide a competitive advantage during the current multi-year cycle of significant Oil & Gas pipeline project activity, which is anticipated to continue at record levels.

Additionally, the wireless business has significant potential, given the fact that substantial investments are expected in wireless infrastructure related to the densification associated with 5G deployment. Fiber expansion continues to be growth driver in its wireless markets.

Power Generation and Industrial segment revenues are likely to grow, as project pipeline and bidding activity continues to be strong. The segment’s revenues, margins and backlog are all projected to grow in 2018. It also anticipates large industry awards in the business, leading to a much-improved environment in 2018 and beyond.

Hurdles to Cross

MasTec operates in a highly competitive and fragmented industry, wherein any organization that has adequate financial resources and access to technical expertise may become a competitor.

Also, it faces execution risk, which that means that if the company fails to properly manage projects or faces project delays, it could result in additional costs or claims for the company. Oil & Gas pipeline segment’s revenues declined 32.5% year over year in the second quarter of 2018 due to delays in work.

Additionally, the company is undertaking various initiatives such as 5G, FirstNet, and Verizon One Fiber that will be in various ramp-up stages during 2018. However, the true impact of these initiatives won't be fully reflected in the Communication segment’s 2018 revenues.

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