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On June 4, The Wall Street Transcript interviewed John F. Kasprzak Jr., Managing Director at BB&T Capital Markets following the building materials/homebuilding sector. Key excerpts, including his sector pick, follow:

TWST: Where are you pointing investors at this juncture?

Mr. Kasprzak: One of our favorite names in recent months has been a company called Granite Construction (NYSE:GVA). Granite is a highway contractor. Their largest market is California - it's 45% of sales. So they benefit from the infrastructure theme. They benefit from strength, notably in California. The state has authorized $20 billion of bonding authority over the next 10 years, specifically for highway construction. So it looks like spending trends in Granite Construction's largest state are very robust. Granite has one division that's losing money and has been struggling with some larger infrastructure projects. It appears that a lot of those problem projects will be finished in 2007. Hopefully they can move on to more profitable work later this year and next year. If they do, then the turnaround in the earnings could be substantial.

TWST: Are the problems in this division self-induced?

Mr. Kasprzak: Yes. They were the ones that bid on the projects and have unfortunately lost money on some of these projects over the last couple of years. Having said that, we do think they are well into the process of finishing that work, and hopefully the company has accounted for risk and built in a better margin in newer work. That's why we are optimistic about a turnaround.

TWST: What kind of growth do you expect from Granite over the next couple of years?

Mr. Kasprzak: The company earned $2.15 a share in 2006. Our estimate for 2007 is $3.12, and our estimate for 2008 is $3.80.

TWST: So some good gains?

Mr. Kasprzak: Some good gains that are predicated on that turnaround in that one division.

TWST: What should investors keep an eye on to judge whether that's actually taking place?

Mr. Kasprzak: Simply put, their quarterly reports. They showed improvement in that division in the first quarter, and if they can continue to show improvement as we move into the seasonally stronger period of the year for construction activity - the second and third quarters - we think that should be met positively.

GVA 1-yr chart

GVA

Source: Granite Construction: Poised for a Turnaround