Tetra Tech Makes Canadian Acquisition

Oct.14.10 | About: Tetra Tech, (TTEK)

Tetra Tech Inc (TTEK - Analyst Report) made its third major acquisition in Canada by acquiring engineering and consulting firm BPR based in Quebec. The previous two were those of EBA Engineering Consultants in August 2010 and Wardrop Engineering in January 2009.

BPR caters to water, energy, industrial plants, buildings and infrastructure projects. It has 1,600 employees and grossed $170 million in revenues over the trailing twelve months.

The transaction is expected to be accretive to FY2011 earnings per share.

We expect the U.S. stimulus package to drive accelerating sales and profit growth over the next couple of years. TTEK should exceed expectations in 2010, given its defensive growth profile, strong balance sheet and potential for further upside from stimulus spending and potentially accretive acquisitions.

Federal bodies like The United States Agency for International Development [USAID] and the Army Corps of Engineers and the Environmental Protection Agency [EPA] are all receiving significant increases in funding even without taking stimulus spending into account.

Including stimulus funding, these departments and the Dept. of Defense are responsible for approximately 40.0% of TTEK's revenues. In the most recent quarter, 18% of quarterly revenues were sourced from U.S state and local bodies. Moreover, TTEK is set to experience a 25% funding increase in the current year.

Demand for state and local government services is cyclical and vulnerable to economic downturns. If the economy weakens, then the company’s revenues, profits and financial condition may deteriorate. TTEK derives a majority of its revenue from government agencies. Any disruption in government funding or in its relationship with those agencies could adversely affect its business.

A significant shift in U.S. defense spending could harm the company’s operations and reduce future revenues. Moreover, delays in the completion of the budget process by the U.S. government could postpone procurement of its services, adversely impacting future revenues.

Tetra Tech Inc. is a leading provider of consulting, engineering, program management, construction and technical services focusing on resource management and infrastructure. It provides cost-effective and innovative solutions to serve fundamental needs for water, environmental and alternative energy services.

It typically begins at the earliest stage of a project by applying science to problems and developing solutions tailored to clients' needs and resources. Its solutions may span the entire life cycle of the project and include applied science, research and technology, engineering, design, construction management, construction, operations and maintenance, and information technology.

We currently have a Neutral recommendation on Tetra Tech Inc.