MasTec Acquires Pacer, Expands Canadian Presence - Analyst Blog

Shares of infrastructure construction company MasTec, Inc. ( MTZ ) gained 3% since the announcement of its acquisition of Pacer Construction Holdings Corporation, a leading contractor in Western Canada, and its affiliated operating companies. The acquisition is worth $126 million in cash plus a 5-year contingent earn-out.

Headquartered in Calgary, Alberta, Canada, Pacer mainly focuses on infrastructure construction supporting the oil and gas production/processing, mining and transportation industries. Moreover, it also has a strong presence in, among other locations, Fort McMurray, Fort McKay and Edmonton, Alberta and Regina, Saskatchewan.

Pacer has a workforce of nearly 1,600 people and has more than 2,000 pieces of owned construction equipment. At closing of the deal, Pacer had approximately $54 million in tangible net worth (including $87 million of debt).

MasTec added that on Jun 25, 2014, the company amended its senior secured credit facility. MasTec increased the aggregate borrowing commitments from $750 million to $1 billion, adding the capability to borrow in Mexican pesos (in addition to Canadian dollars) and raising the amount that can be borrowed in these alternative currencies from $100 million to $200 million. The amended credit facility also retains an accordion feature that will allow a $250 million increase in the amount available under the facility to $1.25 billion.

Given Pacer's strong presence in Canada's dynamic energy and mining sectors, it will help in MasTec's plan to lead the development of energy infrastructure in Canada. The expansion of MasTec's senior credit facility, backed by the company's strong cash flow, will provide it with financial flexibility to engage in strategic growth opportunities across North America.

MasTec shares took a beating after the company lowered its outlook for the second quarter of 2014 on Jun 2. Notably, MasTec reduced its second quarter earnings per share (EPS) guidance to 40 cents from 53 cents and cut the revenue guidance to around $1.1 billion from the previous range of $1.15-$1.2 billion.

The weak outlook was blamed on unexpected delays in wireless project spending and weaker-than-expected performance at the oil and gas segment. MasTec expects wireless project revenues to decline in the second quarter as various planned projects were deferred and or reduced in scope.

These unexpected revenue declines will negatively affect segment results reflecting the effect of reduced absorption of non-variable indirect and overhead costs. In addition, the company foresees changes to levels of second half 2014 wireless project spending, although the extent of potential changes cannot be estimated yet.

Coral Gables, FL-based MasTec is a leading infrastructure construction company that operates primarily in North America and caters to a range of industries. Its services include engineering, building, installation, maintenance and upgrade of energy, utility and communications infrastructure as well as industrial infrastructure.

At present, MasTec has a Zacks Rank #3 (Hold). Some better-ranked stocks in the building and heavy construction industry include Gibraltar Industries, Inc. ( ROCK ), Tutor Perini Corp. ( TPC ), Primoris Services Corporation ( PRIM ). While Gibraltar Industries and Tutor Perini hold a Zacks Rank #1 (Strong Buy), Primoris carries a Zacks Rank #2 (Buy).

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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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