MTZ - MasTec

[rb]

Anyone have any thoughts on this?

 

It's trading at 6x 2019 earnings. Whatever that means these days.

 

It's an E&C company. Looks like a tier 2 contractor. They do contract work for O&G, telcos, power generation, and utilities. O&G business is contracts for work on pipelines. For all intents and purposes most of their money comes from O&G and telcos. O&G is 43% of revenue and 77% of EBITDA. Telco is 36% of revenue and 25% of EBITDA.

 

Debt is at 2.5x pre-tax income. They don't have anything meaningful coming due until 2023 and they have a massive credit line.

 

My guess is that the O&G volume comes down and that the margins also get squeezed. But these guys are already pretty squeezed normally so I don't think that the margins come down that much. So a 30% in O&G volume and a 10% (relative) drop in margin takes net income down to about 200 million. Then an adjustment of 100 million cause non-cash D&A is higher than CAPEX. You have earnings of around 300 million or about 8x earnings.

 

I should mention that their website is currently down. So that's a little worrying.

[valuedontlie]

I've looked at the name before... Jose Mas has had some timely insider buys a few years ago when it got into the teens...

 

E&C businesses with debt scare me a bit... well-run companies like Jacobs try to keep net cash or close to net cash positions b/c working capital can crush you... large A/R balances while you pay workers and debt along the way... MTZ has almost $2bn in A/R on $7bn in revenue...

 

Reminds me of trucking where the best of breed like HTLD or ODFL never carry much of a debt balance

[pullseeknee]

Looking backwards they've had a good run.  BVPS and EPS growth has been strong.  ROIC is par for the industry. 

 

Looking forward, they still look good to me.  A 15% growth rate seems achievable for the next 3 years.  Their telco business will stay strong with the 5G roll out.  Especially since it looks like the mid-band 5G is going to be more prevalent in the US.  The mid-band requires a new radio and possibly new antenna, which means a lot of work for them.  Also, on the fiber side, you are going to see a lot more demand for reliable, faster internet as we continue to work from home, which will keep them busy upgrading/pulling new lines.

 

@rb

 

Have you done more research on MTZ?  I'm curious if you've given it more thought.