MasTec Is Well Positioned For 2018, The Numbers Prove It

Summary

• MasTec recently reported impressive Q4 and Full-year 2017 operating results and the company's management team provided strong guidance for 2018.
• This small-cap company is well positioned for 2018 and beyond.
• MasTec is a long-term buy at today's price.

MasTec (NYSE:MTZ) has been a top performer for the R.I.P. Portfolio over the last year. Additionally, MasTec's most recent operating results show that its management team has the company well-positioned for 2018 and beyond.

This small-cap infrastructure company (market capitalization of ~$4.25B) has reported strong financial results in each of the last four quarters and the company's business segments are operating in industries that have promising long-term prospects. As a direct result, MTZ shares have outperformed the broader market by a wide margin over the last year.

MTZ data by YCharts

However, it is important to note that MTZ shares are still attractively valued, even after the recent stock performance. Additionally, I believe that the company's Q4 and Full-year 2017 results show that the bull case for MasTec is still intact.

Background & Bull Case

MasTec is an infrastructure company that has four operating segments, with the Communications unit being the largest segment.

Source: Barclays Industrial Select Conference Presentation, Feb. 22, 2018

As shown, management has diversified MasTec's business so the company is no longer tied strictly to the communications industry. Over the past few years, the company was negatively impacted by the downturn in the oil and gas industry but, more recently, even this operating segment has experience strong growth. MasTec's current structure has allowed for its management to heavily invest in high-growth areas while the company contended with industry headwinds, and these investments have already paid huge dividends. To this point, MasTec has reported double-digit growth in revenue and adjusted EBITDA over the last ten years.

Full Disclosure: The company reported full-year 2017 revenue of $6.6B and adjusted EBITDA of $645M, as described later in the article.

MasTec has a proven track record for growing its business and, in my opinion, there are no signs of this company slowing down anytime soon. Plus, it helps that management expects for the improving market opportunities for its operating segments to continue through at least 2018.

The recovery in the oil and gas market created a strong tailwind for this company in 2017 but, in my opinion, the market opportunities in the communications industry makes me excited about what 2018 may bring for MasTec. More specifically, the FirstNet and 5G rollout could turn out to be significant catalysts for this company over the next three-to-five years.

Simply put, MasTec has a great management team and the company is operating in several industries that have promising long-term business prospects. This infrastructure company has largely flown under the radar but, in my view, the market is finally starting to realize that there is a lot to like about MasTec, especially at current stock price levels.

The Most Recent Results, Good From Top To Bottom

On February 27, 2018, MasTec reported Q4 2017 results that beat the top- and bottom-line estimates. The company reported Q4 2017 adjusted EPS of $0.47 ($1.95 if you factor in the impact of the tax reform bill) on revenues of $1.6B, which were big improvements from the same period of the prior year.

Source: MasTec's Q4 2017 Earnings Presentation

The EPS figures for Q4 and Full-year 2017 were both positively impacted by the tax reform bill, so I do not believe that the above table tells the whole story. However, this company experienced impressive growth almost across the board over the last 12 months.

The Oil and Gas segment was the biggest contributor to the YoY growth in revenue and EBITDA but, as shown, each of the four operating segments reported increases in EBITDA when compared to the prior year.

There was a lot to like about MasTec's Q4 and Full-year 2017 results but, in my opinion, the biggest takeaway from the earnings release (and provided guidance) is that this company is well-positioned for not only the current year but also for the next few years. To this point, management provided the following full-year 2018 guidance:

• Annual revenue to be $6.75B (up from $6.6B in 2017)
• Adjusted EBITDA of $685M (up from $645M in 2017)
• YoY growth for its already record backlog of $7.1B

What's not to like about this guidance? An impressive 2017 but an even better 2018 - it's hard not to be encouraged about what the next four quarters may bring for MasTec and its shareholders.

Valuation

MasTec's stock is attractively valued when compared to its peer group.

MTZ PE Ratio (NYSE:TTM) data by YCharts

The company's valuation is even more attractive when you consider the fact that the broader market is trading near all-time highs. MasTec will go as the economy goes but, in my opinion, it is hard not to get excited about MTZ shares around the $50 range. The Street is also bullish on MasTec ("buy" rating with a $60.77 price target per Yahoo! Finance) but, as you are probably aware, that does not guarantee future success for the company or its shareholders.

Risk

Investing in small cap companies comes with many risks, but the major risk for MasTec is related to the company's reliance on other companies, and more specifically companies in the telecom space. If these companies cut back their operations and/or outsourcing needs, MasTec's business would be negatively impacted.

Moreover, a U.S. recession would have a negative impact on the company's near term prospects. Please also refer to MasTec's 2017 10-K for additional risk factors that should be considered before investing in the company.

Bottom Line

There was a lot to like about MasTec's Q4 and Full-year 2017 results but 2018 is projected to be an even better year for this company. Management has done an excellent job diversifying the company's business portfolio over the years so I believe that MasTec is well-positioned for 2018 and beyond. As such, prospective investors should use any broader market pullbacks as long-term buying opportunities.

Author's Note: An infrastructure bill will be a significant catalyst for MTZ so investors should pay close attention to the progress being made by the Trump administration on their plan.

Disclaimer: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his/her own due diligence before making any investment decision.

Disclosure: I am/we are long MTZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.