On Jan 20, 2015, we issued an updated research report on MasTec, Inc. (MTZ), a leading infrastructure construction company operating throughout the United States.
In the third quarter of 2014, MasTec reported adjusted earnings of 53 cents per share, down from 59 cents earned in the year-ago quarter. Earnings were in line with the Zacks Consensus Estimate but below management’s guidance of 56 cents.
For 2014, MasTec raised its revenue guidance to $4.6 billion from the previous range of $4.4 to $4.5 billion. Adjusted EBITDA was projected at $425 million for the full year. The company also revised adjusted earnings outlook to $1.55 per share from the $1.55 to $1.58 band. Due to the seasonality of business and timing of project closeouts in 2014, MasTec hopes to generate significant cash flow from operations in the fourth quarter and expects 2014 results to exceed 2013 cash flow levels of approximately $200 million. The company estimates capital expenditure of $80 million to $85 million in 2014.
In the fourth quarter, cash flow is expected to be significant aided by working capital reduction initiatives at the recently acquired WesTower subsidiary. However, the company expects wireless project activity to slow further in the fourth quarter.
MasTec slashed its revenue growth guidance for 2015 to 9% from the previous range of 13-17%. The company also reduced its continuing operations adjusted diluted earnings per share expectation from the range of $2.00—$2.15 to $1.87. The trimmed outlook reflects lower levels of wireless project spending and the impact of reduced oil prices on its oil and gas segment.
MasTec’s Oil and Gas segment accounts for roughly 38% of total sales and roughly 15% of the segment’s sales are related to gathering lines and facilities work (including oil sands facilities). This business is the most vulnerable to lower production. Even though the oil related midstream businesses (both Big Country in Canada and Pumpco in the US) are less likely to get affected in the near-term, they might get hampered in a sustained low oil price environment.
The wireless business experienced a number of deferrals and delayed expenditures, which have negatively impacted growth in the second half of the year. With the ramp in resources to meet the expected growth earlier in 2014, these deferrals negatively impacted not only MasTec’s growth, but also its margin profile, as utilization levels were lower than expected. Even though the company strives to adjust its workforce and continue to closely manage its workforce levels, these changes will continue to negatively affect its financial performance in fiscal 2014.
As of the third-quarter end, MasTec’s long-term debt was at $1.09 billion, compared with $765 million as of Dec 31, 2013. The debt-to-capitalization ratio rose to 49% as of Sep 30, 2014, from 43% as of Dec 31, 2013. Debt has increased following the Pacer acquisition in Jun 2014. In connection with the WesTower acquisition, MasTec amended its credit facility in Oct 2014. The amendment used a portion of the Credit Facility's $250 million accordion feature to make available an additional $75 million term loan, which increased aggregate borrowing commitments to $1.075 billion.
MasTec is expected to release its fourth-quarter earnings results on Feb 26, 2015. The Zacks Consensus Estimate for the quarter is currently pegged at 35 cents, reflecting a 30% year-over-year decline, and for fiscal 2014 is at $1.44, a projected decline of 20.28%.
Other Stocks to Consider
At present, MasTec has a Zacks Rank #4 (Sell). Some better-ranked stocks in the building and heavy construction industry include Dycom Industries Inc. (DY), Orion Marine Group, Inc (ORN) and Tutor Perini Corporation (TPC). All of these stocks hold a Zacks Rank #2 (Buy).
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