Trinity Industries (TRN) is one of the largest producers of railroad cars, with roughly 36% share of...
Tutor Perini: Airports to High Speed Rail
12/07/2017 5:00 am EST
Tutor Perini (TPC) is a leading global provider of diversified general contracting, construction management and design-build services to private sector customers and public agencies, notes growth stock expert Taesik Yoon, editor of Forbes Investor.
This includes the planning and scheduling of manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the contract terms.
In addition, TPC offers self-performed construction services such as site work; concrete forming and placement; steel erection; electrical; mechanical; plumbing; and heating, ventilation and air conditioning (HVAC).
Q3 revenue fell 10.0% year-over-year to $1.20 billion. These results fell well short of expectations, with revenue and earnings missing their respective consensus estimates by $347 million and 26 cents per share.
This has contributed to a steep sell-off in TPC’s shares, which are down roughly 15% over the past month. Had the soft Q3 results and tempered full-year outlook been the result of deteriorating demand, an increasing competitive landscape or other more permanent changes in market conditions, we too would probably pass on the stock.
But, that wasn’t the case. Specifically, the company was hurt by a larger than expected reduction in volume associated with various civil and building projects that are already nearing completion. TPC is also experiencing certain delays in the timing of work and project execution activities for previously awarded projects.
For example, the inability to obtain right-of-way permits by the owner of the California High-Speed Rail Authority CP 1 project has led to delays that will shift more than $300 million in revenue and related profits from the second half of this year into 2018.
What’s important, however, is that such delays merely defer when this work will occur and associated revenue will be recognized. They do not represent a loss in business.
Indeed, TPC believes that most of the right-of-way issues will be resolved by next month. This should allow work on the rest of the project to get underway, which is anticipated to yield approximately $800 million in total revenue over the next 24 months.
The healthy fundamentals in the domestic civil construction market has continued to yield a growing list of large opportunities ahead. This includes the $2 billon Long Island Rail Road third track and the $1.6 billion Newark Liberty Airport Terminal A projects, which the company has already tendered bids for and is currently awaiting decisions on.
It is also preparing to bid on a $1.8 billion opportunity for the next section of the Los Angeles subway system (MTA Purple Line Section 3), which will adjoin the current section that TPC is working on under a contract awarded earlier this year.
Other potential contracts include the $950 million Portal Bridge project in New Jersey, a $750 million project to replace the Harry Nice Bridge in Maryland and the $650 million expansion of the Las Vegas Convention Center. Bidding on these opportunities should commence early next year.
Given the success it has had in winning large civil awards over the past year, we think TPC will continue to garner a meaningful share of business on these and other upcoming projects.
When combined with incremental work stemming from rebuilding efforts in areas impacted by Hurricanes Harvey and Irma, this is likely to further drive higher bookings and backlog lead to improved margin performance, and result in meaningful earnings growth in the coming year that will be strong enough in our view to send TPC’s stock significantly higher from here.
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