Bull of the Day: MasTec (MTZ)

I last wrote about MasTec ( MTZ ) as the Bull of the Day on March 2 after their strong December-quarter report delivered big top and bottom lines beats, plus a surprisingly robust backlog of orders.

But even as analysts raised estimates and price targets for the company to over $70, the stock floundered in the malaise of a potential trade war. MTZ shares followed the Industrial Sector ( XLI ) below its 200-day moving average.

A Bottom for Patient Optimists

As worried as I was about the impacts of a trade war, I just couldn't sell my MasTec shares with the strong projected growth rates and attractive valuation. And on April 30 I was rewarded with the beginnings of a double dose of goodness.

First, MTZ delivered another strong March-quarter report with a 59% EPS beat, causing shares to bounce hard off of $44.

And three days later, the XLI bottomed and reversed higher by May 3.

The $4 billion E&C services (engineering & construction) provider for telecom and energy companies delivered its 9th-consecutive earnings beat with Q1 2017 adjusted EPS of $0.35 vs the Zacks consensus of $0.22.

The company saw broad-based revenue growth of over 20% and the nearly $1.4 billion top line haul beat the Wall Street consensus by over 10%. With particularly strong margins in the Communications business, all segments posted year-over-year revenue and backlog growth during the quarter.

Total backlog increased 33% y-o-y and 6.5% sequentially. The company also increased full year adjusted EPS guidance by $0.20, which many analysts saw as conservative in early May even before they just won a new $500 million contract on June 4 for power restoration and construction in Puerto Rico. More on that coming up.

Guidance Points Upward

For the full year 2018 MasTec gave the following guidance:

Revenues to a record $6.9 billion vs. $6.75 billion previously provided.

Adjusted EPS of $3.65 vs. $3.45 previously.

Analysts responded in the past month by moving the Zacks EPS consensus for 2018 from $3.48 to $3.67. And 2019 moved up from $4.01 to $4.21.

But some analysts appeared confused in early May as they lowered price targets on MTZ. Credit Suisse lowered their PT from $70 to $64 while Robert W. Baird analysts dropped theirs from $55 to $51.

Meanwhile, analysts at B. Riley/FBR addressed concerns in a research note titled "Valuation Suggests Doubts About 2H18 Earnings Power; 1Q Results and Backlog Strong; Reiterate Buy." And here was their summary view...

We are raising our estimates for 2018 and 2019 and reiterate our Buy rating and $71 price target for MasTec as we believe the shares, which are trading at 6.8x our estimated 2018 EV/EBITDA, fully discount any concerns about 2018 being back-half loaded.

Pipelines, Powerlines, and Hurricanes, Oh My!

While analysts may like to see consistent organic growth from the ever-lumpy telecom and oil/gas sectors, MTZ is also an "emergency responder" of sorts and should not be penalized for swings in sales and profits due to natural disasters. Here was the news on June 4 from the company press release...

MasTec, Inc. today announced that it has signed a master services agreement with the Puerto Rico Electric Power Authority ("PREPA") to complete the restoration of the critical electrical transmission and distribution system components damaged as a result of Hurricane Maria as well as to support the initial phase of reconstruction and modernization of the electrical power system in Puerto Rico. The master services agreement award has an estimated value of $500 million. Services under this contract are expected to be completed over the upcoming 12 months, once MasTec completes the process of remobilizing crew and equipment resources to Puerto Rico.

In the overall trends of lumpy telecom and energy projects and unpredictable disaster work, analysts at Stifel Nicolaus see strong growth. Here's what they had to say last month...

Results and management commentary remained supportive of our thesis that tailwinds behind each of the company's businesses are gaining force in 2018 and should drive strong 2H18 and 2019 results. We believe the company remains in a position to beat and raise through the year and see numerous sources of upside to our 2019 and 2020 forecasts.

The i-bank views the company's guidance as conservative and thus raised estimates out to 2020, maintaining their Buy rating and $63 price target on the shares.

MTZ beats quarter after quarter and maintains its Zacks #1 Rank for a reason. And those are reasons enough to buy.

Disclosure: I own MTZ shares for the Zacks TAZR Trader portfolio.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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