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MasTec (MTZ) Well Poised for 2016 Despite a Weak 2015

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On Nov 13, we issued an updated research report on MasTec, Inc,MTZ , a leading infrastructure construction company operating in the U.S. The company is engaged in building, installation, maintenance and upgrade of energy, communication and utility infrastructure.

Looking back at MasTec's third-quarter 2015 performance, adjusted earnings (excluding one-time items barring non-cash stock compensation expense) fell 60% year over year to 24 cents per share. The company's net sales decreased 16% year over year to $1.11 billion in the quarter.

For 2015, MasTec projects annual revenues within approximately $4.1-$4.15 billion, with continuing operations adjusted EBITDA in an approximate range of $295-$305 million and earnings per share within 53-60 cents. This translates into fourth-quarter revenue guidance of approximately $900 million, with continuing operations adjusted EBITDA margin in a range of 7.7%-8.2%. The guidance assumes lower level of fourth-quarter revenues from a large Oil and Gas project currently in process, due to a delayed start date. MasTec also anticipates fourth-quarter Oil and Gas revenues to decrease sequentially in the mid-20% range, which will negatively impact fourth-quarter overhead utilization and EBITDA margins.

On the brighter side, MasTec's current backlog currently scale record levels, reflecting an approximate increase of $500 million increase or 12% to $4.6 billion during the quarter across multiple segments. The company also expects continued significant backlog growth during the fourth quarter, including addition of over $1.5 billion of oil & gas projects. Once fully executed, these contracts will be recorded in fourth-quarter backlog. The company remains optimistic about its prospects for 2016 and beyond, with lucrative opportunities in Oil & Gas, Wireless and Fiber network upgrades.

While its wireless business might remain sluggish in 2015, the company expects solid prospects in 2016 and beyond. Data usage and demand is expected to continue growing at an exponential level, which will require MasTec's customers to increase their network capacity. Moreover, the Federal Communications Commission's move to the Connect America Fund has stimulated new spending by carriers for bringing wireless broadband to rural America. This initiative will trigger technology additions on existing towers, cell tower reinforcement and incremental fiber builds to areas needing coverage.

The electrical transmission business continues to underperform and MasTec remains focused on bringing it back to a profitable level. The company has taken significant steps toward right-sizing this business and expects fourth-quarter EBITDA to break even. In the power generation and industrial segment, the bidding environment for 2016 is strong. Expecting continued improvement in the performance of this segment, the company projects revenue growth to exceed 10% in 2016.

On the flipside, increased levels of debt and concentration of business among few major customers remain as concerns.

MasTec currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Dycom Industries Inc. DY , Jiangsu Expressway Co. Ltd. JEXYY and Zhejiang Expressway Co. Ltd. ZHEXY . While Dycom sports a Zacks Rank #1 (Strong Buy), Jiangsu Expressway and Zhejiang Expressway carry 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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