Bear of the Day: Granite Construction (GVA) – Bear of the Day

Granite Construction Incorporated (GVA) reported a first quarter loss of 53 cents per share, missing the Zacks Consensus Estimate by a wide margin. This prompted analysts to revise their earnings estimates significantly lower for both 2013 and 2014.

This sent the stock to a Zacks Rank #5 (Strong Sell).

Granite Construction is an infrastructure contractor and construction materials producer. It serves public- and private-sector clients in the transportation, power, federal, tunneling, underground, and industrial/mining and water resources markets.

First Quarter Miss

Granite Construction reported its first quarter results on May 9. Excluding an acquisition, revenues rose 1.5% while the gross profit margin declined 10 basis points to 7.9%. Meanwhile, selling, general and administrative expenses increased 69 basis points to 15.2% of total revenue.

These factors led to a loss of 53 cents per share, well below the Zacks Consensus Estimate of -26 cents. It was the company’s second straight earnings miss.

Estimates Falling

Although the backlog for Granite increased from $1.7 billion at year-end to $2.4 billion at the end of Q1, estimates still fell significantly for both 2013 and 2014. This has sent the stock to a Zacks Rank #5 (Strong Sell).

The Zacks Consensus Estimate for 2013 is now $1.12, down from $1.70 just 30 days ago. The 2014 consensus has fallen from $2.82 to $2.39 over the same period.

You can see this negative earnings momentum in the company’s ‘Price & Consensus’ chart:

Granite Construction also carries a long-term “Underperform” Zacks Recommendation.

Valuation

Shares of GVA currently trade around 15x 12-month forward earnings, which is basically in-line with the industry median. But investors may want to consider some other stocks with better earnings momentum within the ‘Building-Heavy Construction’ industry. For instance, Primoris Services (PRIM) is a Zacks Rank #1 (Strong Buy) stock, and Chicago Bridge & Iron (CBI) is a Zacks Rank #2 (Buy).

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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