MasTec: Headwinds in Infrastructure

12/03/2014 7:00 am EST

Focus: STOCKS

Taesik Yoon

Editor, Forbes Investor and Forbes Special Situation Survey

The current year has been a pretty good one for many companies. But this has not been the case with our new recommendation, an infrastructure construction company, observes Taesik Yoon, editor of Forbes Investor.

MasTec (MTZ) is involved in the engineering, building, installation, maintenance, and upgrade of communications networks, petroleum, and natural gas pipelines, and electrical transmission and power generation systems.

An unexpected spending freeze by its largest customer—AT&T (T)—coupled with slower project start-ups from the oil and gas market, resulted in a sharp reduction in the company’s profit forecast for the year. 

With the recent drop in oil prices raising additional concerns over a possible slowdown in capital spending by its oil and gas customers, MTZ has seen its stock drop nearly 45% in the past seven months.

Yet with 2014 finally drawing to a close, the focus should turn to prospects in the year ahead.  Fortunately, these look much better. 

Indeed, MTZ’s recently provided preliminary guidance for 2015 indicates growth of at least 13% and 29%, respectively, from the $4.60 billion in revenue and $1.55 in adjusted earnings per share expected in the current year. 

While investors clearly have their doubts, a number of reasons have us believing that the company can not only meet, but even exceed this guidance.

Specifically, wireless data and video usage continues to increase exponentially, which will require all carriers, including AT&T, to regularly expand their high-speed 4G/LTE network capacities. 

At the same time, MTZ’s recent acquisition of WesTower Communications, which provides construction and maintenance of communications infrastructure, better positions the company to take advantage of opportunities from other customers stemming from expected network expansions in 2015 and beyond. 

Further, MTZ’s outlook assumes no material improvement in long-haul project activity within the oil and gas market until late next year, despite the fact that bidding activity in North America has actually remained very active. 

Of course, things could change if wireless spending levels take longer to rebound or if oil prices remain depressed over an extended period of time. 

But the precipitous drop in the stock over the past seven months implies that much of these risks are already priced in. On the other hand, if MTZ delivers on, or exceeds expectations as we believe, its stock is likely to enjoy a significant rebound in the year ahead.

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