On May 10, we issued an updated research report on MasTec, Inc. (MTZ). Backed by the record backlog, solid demand this the infrastructure construction company expects a record performance in 2018. MasTec is poised to gain from significant number of project awards across multiple segments. Further, its strong cash flow, solid capital structure and ample liquidity will provide financial flexibility to support significant growth opportunities.

 

Let’s analyze these growth factors in detail.

 

 

The year 2017 marked the second consecutive year of record financial performance for MasTec. The momentum continued in the first quarter-2018 as well. At the quarter-end, the company’s 18-month backlog was a record $7.6 billion, an increase of 33% from the prior-year quarter end. This included record segment level backlog in Communications, Oil & Gas and Power Generation & Industrial.

 

Driven by record backlog and solid demand for its services across multiple markets, the company anticipates delivering another record year in 2018. It projects 2018 annual revenues to be at record levels of $6.9 billion. Revenue growth will primarily be driven by the Communications, Transmission and Power Generation segments. Driven by the backlog generated from the combination of increased renewable project activity and the expansion of services into biomass and other smaller production facilities, the Power Generation & Industrial segment will exhibit sizable growth.

 

The Communications segment will benefit from fiber deployments, FirstNet and the beginning of 5G rollouts. The Transmission and Power Generation business will continue to gain from backlog growth. The pipeline business is poised to benefit from a large multi-year cycle of large project buildouts.

 

MasTec anticipates record adjusted earnings per share of $3.65, which marks a rise of 25% over the prior-year levels, higher than its previous guidance of $3.45. Additionally, it estimates adjusted EBITDA be around $700 million, up from its previous guidance of $685 million.

 

 

The recently passed Tax Cuts and Jobs Act will be a catalyst for MasTec. The company’s adjusted tax rate will be around 29.5% of pre-tax earnings in 2018 compared with 39% adjusted rate for 2017. The company is also likely to experience an even greater cash tax benefit going forward due to the acceleration of tax deductions on capital expenditures. In addition to this direct benefit, several of its large customers have announced incremental capital expenditures in 2018 and beyond, owing to the tax reform. This will boost MasTec’s revenues in turn.

 

 

MasTec’s wireless business has significant potential given that substantial investments are expected in wireless infrastructure related to the densification associated with 5G deployment. Every major carrier has publicly announced plans and initiatives for 5G. Moreover, AT&T Inc. (T Quick QuoteT - Free Report) was awarded FirstNet — a nationwide public safety wireless network. In the recent announcement between T-Mobile and Sprint Corpration (S Quick QuoteS - Free Report) , management guided to a potential network investment of $40 billion over a three-year period.

 

In its wireline markets, fiber expansion continues to be a growth driver. It is just the beginning of the most aggressive fiber build cycles in its history. A number of customers are aggressively deploying fiber assets, and these levels will significantly increase in 2018, with a considerable ramp up in 2019. The company anticipates strong nationwide fiber deployment projects from both telephone companies and cable TV companies that will provide it with significant opportunities over the coming years.

 

 

In 2017, MasTec completed three acquisitions. The company acquired SEFNCO Communications, Inc., a telecommunications service provider, which will expand MasTec’s geographic and customer capacity in the wireline/fiber deployment market. Further, its buyout of Texas-based infrastructure construction company — Cash Construction — will provide exposure to the growing water market.

 

The company also acquired a leasing company of Oil & Gas specialty pipeline equipment. This buyout is anticipated to help prune overall equipment costs as well as provide a competitive advantage during the current multi-year cycle of significant Oil & Gas pipeline project activity. Furthermore, the geographic expansion of heavy civil operations and entry into the water, sewer and drainage systems infrastructure market operations will open up opportunities to capitalize on the increasing demand trends in this market.

 

 

 

In the last year, MasTec has outperformed its industry with respect to price performance. The stock has gained around 9%, while the industry has recorded growth of 1%.

 

 

MasTec currently flaunts a Zacks Rank #1 (Strong Buy).

 

Other similarly-ranked stocks in the same space include PGT Innovations, Inc. and Norbord Inc. . Both the stocks carry the same rank as MasTec. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

PGT Innovations has an expected long-term growth rate of 19%. Its shares have appreciated 60% in a year’s time. 

 

Norbord has an expected long-term growth rate of 9%. Its shares have gone up 44% in a year’s time. 

 

 

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