MasTec: An Infrastructure Gem

02/26/2015 8:00 am EST


Bret Jensen

Editor, Biotech Gems

The plunge in oil has been breathtaking and investors have indiscriminately sold anything connected to the sector; this purge has opened up opportunities for value-based long-term investors, asserts Brett Jensen, editor of Small Cap Gems.

MasTec (MTZ) enables electric transmission, oil and gas pipelines, and communications companies to facilitate the production and delivery of their products.

The stock has been more than cut in half over the past nine months. But there are myriad reasons to believe the shares are deeply undervalued and are providing a great entry point for patient investors.

One of the main drivers of the stock's decline is the concern that exploration and production firms will slash their capital expenditure budgets. This makes some sense as MasTec derives almost 40% of its overall demand from the oil and gas sectors.

However, digging deeper one finds a different reality. The simple fact is that exploration and production companies do not pay MasTec's bills.

Rather, it is focused on the midstream and downstream parts of the market, namely the pipelines and transportation companies that get the increasing domestic energy supplies to refiners.

For nearly a decade, the company has done a fantastic job of diversifying its business lines, improving its margins, and increasing both revenue and EBITDA at a rapid clip.

The last three quarters have been a challenging time for the stock, but the company's long-term growth trajectory remains solid.

The company should see earnings growth return in 2015 with the consensus calling for a 20% year-over-year increase in earnings per share on almost 10% rise in revenues.

The company has a solid balance sheet and the stock goes for under ten times this year's projected earnings and one-third of annual revenues, a deep valuation discount.

MasTec is not a stock that will appeal to momentum players. However, the recent decline is providing a solid entry point for long-term investors to build a position in a well-run infrastructure player.

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