On Nov 21, we maintained our Neutral recommendation on
) owing to our concerns about the company's moderate
third-quarter earnings performance.
Why the Reiteration?
On Nov 6, URS Corporation reported third-quarter 2013 non-GAAP
earnings of $1.42 per share, which beat the Zacks Consensus
Estimate of $1.20 by 18.3%. The company reported GAAP net income
of $88.8 million or $1.20 per share in third quarter 2013, down
from $106.7 million or $1.43 per share in the prior-year
The company benefited from its initiatives to diversify its
business across both private and public sectors, which negated
the difficult conditions arising due to unprecedented government
shutdown and sequestration.
Total revenue in the quarter was $2.74 billion, down 7.2%
compared with $2.95 billion in the prior-year quarter and missed
the Zacks Consensus Estimate of $2.96 billion. The decline in
revenues was due to an after-tax goodwill impairment charge in
the quarter. However, the company benefited from an after-tax
income from its acquisition of Flint Energy Services and a
positive currency gain from Canada.
Following the release of the third-quarter results, the Zacks
Consensus Estimate for fiscal 2013 contracted 6.8% to $1.10 per
share. Moreover, the Zacks Consensus Estimate for fiscal 2014
also declined 7.1% to 91 cents per share.
Demand for URS Corp's services is cyclical and vulnerable to
economic downturns as well as reductions in government and
private industry spending. If the economy remains weak or
client spending declines further, then its revenues, profits and
financial condition may deteriorate. Global economic conditions
have caused clients to delay, curtail or cancel proposed and
existing projects. This decreases the overall demand for
services, leading to weak financial results.
The company's largest clients are from the federal market
sector. Federal Services revenues were $538.9 million in third
quarter, down 22.7% from $682.8 million a year ago.
However, the improving capital spending environment will
continue to benefit both the power and industrial and commercial
sectors. Recovery in the power sector intensified in 2012,
generating the consecutive year-over-year growths in annual
revenues since 2008.
In addition, business in North America gained momentum during
the year and the federal sector business continued to deliver
record revenues. URS Corp.'s strategy to setup a diversified
business is also a driving factor. The company is focused on
building a balanced portfolio in four key market sectors.
Other Stocks to Look For
Currently, URS Corp. retains a Zacks Rank #3 (Hold).
However, some better-ranked energy and utility stocks include
AO Smith Corp.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
SMITH (AO) CORP (AOS): Free Stock Analysis
ENERSYS INC (ENS): Free Stock Analysis Report
URS CORP (URS): Free Stock Analysis Report
VSE CORP (VSEC): Free Stock Analysis Report
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