MasTec, Inc. (MTZ) is a multinational infrastructure engineering and construction company based in Coral Gables, Florida, asserts Jimmy Mengel, growth and income expert and editor of The Crow's Nest.
It is a relatively large company with a market cap of $3.3 billion and a broad portfolio of projects, including engineering, utility, and communications infrastructure as well as power generation, natural gas and pipelines.
The company is also involved in wireless, wireline, and satellite communications; wind farms, solar farms, and other renewable energy; and water and sewer systems.
The company had a rough go of things in 2014 and 2015 due to slowdowns in the wireless and oil & gas markets. However, it has delivered 27% EBITDA growth over the last decade, along with a combined annual growth rate of 21% for its revenue.
The first half of 2018 has seen growth slow, but infrastructure and wireless trends provide a tailwind for the company and it is expecting a return to strong growth in the future.
On August 2, 2018, MasTec reported mixed results and the market did not take them well. Shares are down about 11% since the release. The company beat expectations on the bottom line but missed the consensus on the top line. Adjusted Q2 earnings per share hit $1.04, beating analyst consensus by a penny on quarterly revenue of $1.62 billion, which missed by $170 million.
Year-over-year, this marked a decline in revenue by 14% and net income by 2%. Really though, this has all the signs of an overreaction by investors during an otherwise upward long-term trend.
On the good side, the company increased its backlog to record levels. The 18-month backlog is up to $7.7 billion. That bodes well for future results, and the company is certainly expecting a turnaround to start in the second half of this year.
The upcoming surge in infrastructure spending to roll out 5G wireless technology shouldn’t be ignored either. Capital expenditures between $60 billion to $240 billion are expected to last a decade, peaking in the next three to eight years, according to Deutsche Bank.
Second quarter revenue from AT&T (T), derived from wireless and wireline fiber services, was approximately 18% and install-to-home services were approximately 7%.On a combined basis, these three separate service offerings totaled approximately 25% of MasTec’s total revenue.
In other words, MasTec has a significant relationship with AT&T and will be well positioned around the nation to bid and win on contracts to build that infrastructure.
Management has also been returning money to shareholders through share buybacks. The company repurchased 664k shares for roughly $30 million during the second quarter and still has $70 million remaining in its buyback program. Share count has been cut by about 3% so far in 2018.
At current prices and with a good long-term outlook, MasTec is a great bargain buy. The company may not be entirely out of the woods yet, but all signs point to this being a very temporary downturn. Once the company gets its books back in order, probably before the end of this year, we should see investors return to MasTec and re-inflate share prices.
