On Dec 3, 2015, Zacks Investment Research downgraded Tutor Perini Corporation TPC, the building and construction company, to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Since the start of 2015, market sentiment has been weak for Tutor Perini as is evident from the stock losing over 20% of its value year to date. Also, the company’s third-quarter 2015 results as well as the outlook for 2015 failed to instill confidence among investors.
Tutor Perini’s earnings plunged nearly 33% year over year to 68 cents in the third quarter of 2015 from $1.02 reported in the year-ago quarter. Improved performance of various projects, including the New York runway reconstruction project, was offset by unfavorable adjustments associated with a number of electrical projects in New York as well as lower contributions from certain higher-margin civil projects.
In the quarter, Tutor Perini recorded a non-cash pre-tax charge of 28 cents per share for an adverse appellate court decision filed on Nov 9, 2015. This was in connection to a long-standing litigation matter, in which the company assumed liability for a minority interest in a joint venture as part of an acquisition in 2011.
Total backlog on Sep 30, 2015, was $7.5 billion, reflecting a 3.2% decline from $7.75 billion reported on Jun 30, 2015. New awards and adjustments to contracts in process totaled approximately $1.1 billion in the third quarter of 2015.
Tutor Perini has maintained its revenue outlook in the range of $5–$5.5 billion for 2015. The company is, however, re-evaluating its previous 2015 earnings guidance of $1.90–$2.10 per share. Tutor Perini will provide an update in the near future, taking into account the litigation-related charge, year-to-date results and the outlook for the remainder of the year.
In addition, Tutor Perini is exposed to cut throat competition in the construction industry. Significant slowdown in economic conditions will also hurt growth.
The Zacks Consensus Estimate for Tutor Perini’s earnings has moved south 8% over the past 30 days and currently stands at $1.69. The estimate for 2016 has also followed suit with the current Zacks Consensus Estimate going down 8% to $2.41.
Stocks to Consider
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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