Fundamental headwinds due to the government shutdown along with technical weakness, a break of risin...
Will Infrastructure Spending Boost MYR Group?
12/07/2015 7:00 am EST
This new recommendation operates as a prime contractor to private and public utilities, power producers, transmission companies, and local governments, explains Taesik Yoon, editor of Forbes Investor.
MYR Group (MYRG) also designs, upgrades, and repairs high voltage transmission lines, substations, and distribution systems to customers in the electric utility and the renewable energy industries.
It also offers emergency restoration services in response to hurricane, ice, or other storm-related damage.
Boosted by several large contract awards, the company enjoyed a monster year in 2012 with revenues up 28% and earnings nearly doubling from 2011. But this act was tough to follow.
The dearth of large projects since has dramatically impaired the company’s ability to grow earnings even as the steady award of small and mid-sized projects has continued to result in higher revenue levels.
Yet we think 2016 will finally be the year where MYR begins to realize the strong growth in the bottom line that it’s been lacking.
What really makes MYRG attractive in our view is its pipeline of opportunities over the longer-term, which remains very favorable due to the need to modernize, upgrade, and replace the aging and outdated domestic electrical grid and transmission infrastructure.
There is also growing demand to comply with regulatory requirements such as renewable energy standards and the recently introduced Clean Power Plan by the Environmental Protection Agency.
Combined with its precipitous sell-off since late July, the stock is now down 35% over the past four months.
However, we are optimistic in the company’s ability to finally capture the type of large project awards, which have been so difficult to come by, starting next year.
When you combine this with MYRG’s healthy backlog of business and a debt free balance sheet, we think the level of investor pessimism implicit in the stock’s steep sell-off has set the stage for a meaningful rebound in the year ahead.
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