On Jun 24, 2016 we issued an updated research report on MasTec, Inc, MTZ. This leading infrastructure construction company operating in the U.S. has a positive record of earnings surprises in recent quarters.
During second-quarter 2016, MasTec plans to significantly expand construction activities related to two major pipeline projects in the Mexican border and begin construction of the large long-haul oil and gas project later in the quarter. These projects are anticipated to drive earnings and revenue through the rest of the year. For the second quarter, MasTec expects revenues of approximately $1.1–$1.25 billion, adjusted EBITDA of $80–$95 million and adjusted earnings per share of 17–27 cents.
MasTec expects remarkable improvement in both revenues and earnings in 2016 on the back of its execution of multiple large projects. The company guides earnings per share between $1.37 and $1.47 on the back of revenues in the range of $4.8–$5 billion. The guidance reflects encouraging first-quarter results and performance trends, including higher expectations from the Communications, and Oil and Gas segments, offset by lower expectations from the Electrical Transmission segment.
The Zacks Consensus Estimate for the second quarter is currently pegged at 20 cents. Analysts expect the company to report earnings within its guidance. However, for 2016, the Zacks Consensus has moved up 4% to $1.31 per share, much lower than the company’s guided range of $1.37–$1.47.
Despite being affected by a reduction in capital spending for wireless infrastructure by customers in 2015, MasTec’s mobile data traffic continues to expand. This should result in increased demand for the company’s services. Major carriers are in the process of upgrading to 4G technology and are testing the next generation 5G technology for future deployment. The company believes that the need for higher capacity as a result of continued growth in data traffic, along with need for enhanced, faster and more reliable wireless network services and products, including the upgrade of networks to the latest technology; will boost demand over the long term.
On the flipside, MasTec’s electrical transmission business continues to underperform. This segment has suffered approximately $30 million in negative project margins during the past two quarters and is now expected to witness a slight overall loss upon completion. This will hurt profits at the business. Furthermore, MasTec expects to see consistent weakness in the Canadian Oil and Gas business due to weak currency translations and soft market conditions.
MasTec currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Tutor Perini Corp. TPC, TopBuild Corp. BLD and Dycom Industries Inc. DY. All of these stocks sport a Zacks Rank #1 (Strong Buy).
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