MasTec Rides on Solid Backlog & 5G Deployment, Delays Hurt

MasTec, Inc. MTZ has been benefiting from strong backlog, major expansion in 5G and FirstNet, fiber expansion, accretive acquisitions, along with strong pipeline business.

Although large project delays are indeed creating hurdles for the company, this construction service provider has enough visibility throughout the remainder of 2020 and 2021.

Key Growth Drivers

Strong Backlog: Its solid backlog levels, which are a key indicator of future revenue growth, indicate significant opportunities in the forthcoming quarters. As of Jun 30, 2020, the company achieved a record 18-month backlog of $8.2 billion, up $398 million year over year. This backlog provides strong visibility for 2020 and 2021. Backlog in Oil & Gas was up 5.7% year over year, while that of Electrical Transmission, and Clean Energy and Infrastructure increased 12.7% and 61.6%, respectively. MasTec is poised to gain from significant amounts of project awards across multiple segments.

Solid Inorganic Moves: Acquisitions have been MasTec’s preferred mode of solidifying the product portfolio and leveraging new business opportunities. During first-half 2020, MasTec acquired four businesses, including 96%-owned consolidated subsidiary of a heavy civil infrastructure construction company within the Clean Energy and Infrastructure segment; a utility service and telecommunications construction contractor and a wireless telecommunications business in the Communications segment; along with an electrical transmission services company.

Solid Prospects in Wireline & Wireless Businesses: MasTec’s wireless business has significant potential, given substantial investments in wireless infrastructure related to the densification associated with 5G deployment. Every major carrier has publicly disclosed plans and initiatives for 5G. MasTec’s opportunities, based on the total number of network elements involved, are being enhanced by 5G. Each of those elements added require significant construction activity. Meanwhile, in its wireline markets, fiber expansion continues to be a major growth driver. The company — which shares space in the Building Products - Heavy Construction industry with EMCOR Group, Inc. EME, Dycom Industries, Inc. DY and North American Construction Group Ltd. NOA — believes that it is just the beginning of the most aggressive fiber build cycles in its history. A considerable ramp up is expected in 2021.

Key Impediments

Project Delays: Although MasTec has enough visibility throughout the remainder of 2020, the biggest risks to its guidance are governmental permitting, crew social distancing mitigation and the impact they may have on project schedules, along with any potential project delays.

Rising Start-Up/Ramp-Up Costs: Many of the company’s new initiatives such as 5G, FirstNet and Verizon One Fiber will be in various stages of ramping during 2020. Various multi-year initiatives are anticipated to accelerate in size and scope through 2020, which may result in significant costs. Its 2020 guidance includes the impact of expected ramp-up costs from the Communications segment, related to wireless and wireline fiber initiatives in the near future.

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