Shares of infrastructure service provider Macquarie Infrastructure Company LLC (MIC) scaled a 52-week high of $69.00 on Jul 12, before closing the trading session a notch lower at $68.92 for a modest one-year return of 22.7%. Despite its strong price appreciation, this Zacks Rank #3 (Hold) stock has the wherewithal to continue its growth curve. The stock is currently trading at a forward P/E of 47.5x and has long-term earnings growth expectation of 7.0%.
Growth Drivers
Macquarie recently diversified its business by acquiring wind power generating assets in New Mexico from BayWa r.e. Wind, LLC for $10.6 million This is the first investment by Macquarie in the field of wind power generation as it aims to diversify its Contracted Power and Energy segment from solar photovoltaic business into other projects that focus on renewable and unconventional sources of energy. The facility, capable of generating 19.8 megawatts of wind power, offers a steady revenue stream to Macquarie as it has a 20-year power purchase agreement in place with an investment grade counterparty.
Macquarie also inked a definitive agreement to acquire the remaining 50% stake of International-Matex Tank Terminals that operates 12 bulk liquid storage terminal facilities in North America. The transaction, worth over $1 billion ($910.0 million in cash and $115.0 million in stock), equates to International-Matex’s enterprise value of 10.7x trailing 12-month EBITDA of $279.6 million.
By purchasing the remaining stakes in the company from the founders of the business, Macquarie will gain full ownership control of International-Matex to strengthen its stable, largely contracted revenue based business model. Macquarie also intends to implement better controls and processes for expense management and capital expenditure maintenance and leverage International-Matex’s consolidated procurement capability to gain added mileage.
The transaction is expected to be accretive to Macquarie’s Free Cash Flow in 2014, increasing 11.2% year over year to $4.55 per share (excluding transaction-related expenses). Macquarie also introduced Free Cash Flow guidance for 2015 at $5.10 per share, representing year-over-year growth of 12.1%. Since 2007, Free Cash Flow per share in the company has grown by 12.3% each year on an average.
Macquarie intends to distribute this cash as dividends as it targets a payout between 80% and 85% of the Free Cash Flow. Macquarie immediately raised its second-quarter 2014 dividend to 95 cents per share or $3.80 annualized, up 1.3% year over year. For additional liquidity, Macquarie also put in place a $250.0 million revolving credit facility.
All these measures instilled higher investor confidence, catapulting the stock to a 52-week high.
Other Stocks to Consider
Some better-ranked stocks in the industry include United Technologies Corp. (UTX), Compass Diversified Holdings (CODI) and CLARCOR Inc. (CLC), each of which carry a Zacks Rank #2 (Buy).
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