Perini Demonstrates Some Commercial Construction is Still Booming

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 |  About: Perini Corp. (PCR)
by: Dan Weiss

On 2/25 I posted a list of things that I would be looking for in Perini's report (PCR), and below are my interpretations of the data:


1) Backlog: I am expecting a small dip in the overall backlog for the company. Any surprise significantly to the upside could result in a strong move since the stock is trading for a p/e of 10 with over $13 per share in cash. If backlog is significantly worse than expectations, it could act as a drag on the stock.

Backlog came in very close to my own expectations at $7.6 billion (92% cost plus), with $1 billion of new contracts in the fourth quarter. The backlog figure was $200M lower than in the third quarter. The new contracts were diversified across multiple areas including gaming, hospitality, office, healthcare and civil projects.

2) Update on Cosmopolitan Resort Funding: The Las Vegas Sun newspaper posted the following story on Friday: Cosmopolitan dodges.... So it looks like the question marks related to the continuation of funding of the Cosmopolitan Resort have been significantly lessened.

Per the conference call, Cosmopolitan is still owned by the same owner at this time, however, Perini has a 90-day rolling guarantee of payment from Deutsche Bank. It is likely that in a matter of weeks that news will come out of the company.

Note that the Las Vegas Sun posted that Hyatt is in the process of acquiring the interest in the property. Cosmopolitan is responsible for $1.4 billion of the company's backlog and it appears that construction will continue unabated (especially with the project's location on the Las Vegas Strip near Bellagio)


3) Any new contract updates: On January 14, Perini announced $590 million in new contracts covering non-gaming related areas that were predominantly new contracts in the municipal, education and health care areas.

As mentioned above the company announced approximately $1 billion in new and add-on contracts against the completion of $1.2 billion in projects.

4) CityCenter: Updates on the status of the CityCenter project in Las Vegas as well as any word on news related to the CityCenter East project expected in Atlantic City.


The CityCenter Las Vegas project still has roughly $2 billion in backlog and is the company's largest project. In Tuesday's call the company announced that they will likely be learning in the next 3-4 weeks whether they have won the contract for City Center Atlantic City (a potentially multi-billion dollar contract) and Plaza in Vegas. In addition, a little further down the road (although possibly reasonably soon) the company will learn whether they have won the building contract for the new Kerzner casino resort in Vegas. Note that in the call, the company said that they have 1 competitor for City Center Atlantic City and Plaza and no competitors at this time for the MGM/Kerzner JV project. So Im expecting some very positive news in coming weeks.

5) Comments on overall economic environment and the composition of projects that they see going forward.

The team seemed extremely positive (even more so than normal) regarding activity not only in the gaming markets in Vegas, California and Atlantic City but in the healthcare and education facility market in Florida and California. In the gaming/hospitality areas alone they are targeting well over $13 billion in new contracts over 08/09. Of course, the company will not win all of these but the major potential contracts above (City Center Atlantic City, Plaza, Kerzner) have significant potential for not only growth in revenues but backlog and NI as well for the company.

Conclusion: Overall, I was very pleased with the conference call and am very confident in the company's ability to create additional revenues going forward and to create further backlog. I hope to see good news late in March in regards to the potential new contracts. The company has about $17 per share in cash ($459M in cash and equivalents) with just $14 million in long term debt and trailing 12-month EPS of $3.54 per share with continued growth expected in 08 and 09. With a share price of $39, I find the shares very attractive.

Disclosure: Long PCR