On Nov 25, we upgraded our recommendation on resource
management and infrastructure company
Tetra Tech Inc.
) from Underperform to Neutral based on its improved prospects.
Tetra Tech, which focuses on the lucrative pollution control
market, also became a Zacks #2 Rank (Buy) stock shortly after
reporting modest fourth quarter results.
Why the Upgrade?
Fourth-quarter earnings of 39 cents per share (excluding
one-time items) outpaced the Zacks Consensus Estimate of 36
cents. Total revenue in the reported quarter was down 2.9% to
$698.4 million from $719.4 million in the prior-year period.
Revenues, net of subcontractor costs, were $531.5 million
compared with $536.3 million in the year-earlier quarter.
However, revenues were well ahead of the Zacks Consensus Estimate
of $519 million. Over the past four quarters, Tetra Tech has
delivered a positive surprise in just one of the past four
quarters, with an average beat of -3.8%.
Following the release of fourth quarter results, the Zacks
Consensus Estimate for 2014 and 2015 have remained stagnant at
$1.74 and $2.04 a share, respectively.
The company is shifting its focus from federal work, which
contributed only about 25% of the total revenue in the fourth
quarter. This shift is making the company less vulnerable to the
instability in the federal government. The company's maximum
revenues are derived from its U.S. Commercial, U.S.
International, U.S. state and local businesses that contributed
about 75% of revenues in the last quarters of 2014. The company
is likely to benefit further from the ongoing positive growth of
these three sectors.
This apart, the company operates globally and serves public
and private clients. As demand for water and natural resources
increase, governments all round the world have started to take up
environmentally sound initiatives. Tetra Tech is intending to
expand its services in the industry to private clients, including
Fortune 500 companies from utilities, manufacturing, and
chemicals along with food and beverage sectors. Tetra Tech
expects the revenues to increase from around $90 million to $500
million per annum, driven by increased organic and acquisitive
investments. Hence, the industry looks modestly promising for the
Some other stocks worth considering in the pollution control
Fuel Tech Inc
), having a Zacks Rank #1 (Strong Buy), and
Perma-Fix Environmental Services Inc
Sharps Compliance Corp
), both carrying a Zacks Rank #2 (Buy).
FUEL TECH INC (FTEK): Free Stock Analysis
PERMA-FIX ENVIR (PESI): Free Stock Analysis
SHARPS COMPLIAN (SMED): Free Stock Analysis
TETRA TECH NEW (TTEK): Free Stock Analysis
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