Large project delays and ramp up costs are indeed creating hurdles for MasTec, Inc. (MTZ - Free Report) . Nonetheless, this construction service provider is benefiting from strong backlog, major expansion in 5G and FirstNet, fiber expansion, along with strong pipeline business in the Oil & Gas segment. Shares of MasTec have outperformed its industry over the past three months. Encouragingly, the company’s earnings have been surpassing the Zacks Consensus Estimate over the past 10 consecutive quarters.
Meanwhile, earnings estimates have been upwardly revised over the past few weeks, suggesting that sentiments on MasTec are moving in the right direction. Earnings estimates for 2018 and 2019 have moved up 1.1% and 0.7%, respectively, over the past 60 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s delve deeper into other factors that make this stock a solid pick.
What Makes MasTec a Solid Bet?
Record Backlog: The year 2017 marked the second consecutive year of record financial performance for MasTec. The momentum continued in the first nine months of 2018 as well. As of Sep 30, 2018, the company achieved a record 18-month backlog of $7.8 billion, reflecting an increase of 56.2% from the prior-year quarter end. This marks the fourth consecutive quarter of record total backlog, depicting significantly strong end-market demand in 2018, 2019 and beyond. Notably, third-quarter booking activity was driven by strong bookings across multiple segments. Oil and gas backlog grew 148%, reflecting continued strength of this end market; Electrical transmission backlog was up 123%; Power generation and industrial backlog increased 121%; and Communications backlog rose 21%.
The company is expected to gain from increased renewable project activity, the expansion of services into biomass, fiber deployments, FirstNet, the beginning of 5G rollouts, along with strong backlog growth of Transmission and Power Generation business.
Upbeat View: MasTec remains optimistic about its upcoming quarters. The company hiked its 2018 adjusted EBITDA to $719 million (in contrast to approximately $708 million expected earlier) and adjusted EPS to $3.76 (versus prior expectation of $3.67), following strong third-quarter earnings.
The company has solid growth prospects, as is evident from the Zacks Consensus Estimate for fourth-quarter and 2018 earnings of $1.06 and $3.76 per share, which are expected to grow 125.5% and 28.8%, respectively, on a year-over-year basis. The consensus estimate for 2019 earnings is pegged at $4.30, reflecting 14.1% year-over-year growth.
Superior ROE: MasTec’s return on equity (“ROE”) supports its growth potential. The company’s ROE of 17% compares favorably with the industry’s average of 10.6%, implying that it is efficient in using its shareholders’ funds.
Valuation Looks Rational: MasTec has a Value Style Score of A, putting it in the top 20% of all the stocks we cover from this perspective.
The company currently has a trailing 12-month P/E ratio of 13.2, below the industry’s average of 14.9. This indicates that the stock is undervalued compared to peers. Also, the company has a forward P/E ratio of 9.5, lower than the industry average of 9.8. Hence, it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term.
Other Stocks to Consider
Other top-ranked stocks in the Construction sector include Great Lakes Dredge & Dock Corporation (GLDD - Free Report) , Masco Corporation (MAS - Free Report) and United Rentals, Inc. (URI - Free Report) . While Great Lakes Dredge & Dock sports a Zacks Rank #1, Masco and United Rentals both carry a Zacks Rank #2.
Great Lakes Dredge & Dock surpassed earnings estimates in all the trailing four quarters, resulting in average positive surprise of 157.5%.
Masco and United Rentals’ 2019 earnings are expected to grow 12.8% and 21.3%, respectively.
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