MasTec: The Beat (And Raise) Goes On

Summary

• MasTec recently reported Q2 2019 results that beat the top- and bottom-line estimates. Additionally, management raised their full-year 2019 guidance.
• This company is in a position to benefit from several major industry trends/tailwinds, which makes it well-positioned for 2019 and beyond.
• I plan to stay long MTZ shares for the foreseeable future.
• This idea was discussed in more depth with members of my private investing community, Going Long With W.G.. Start your free trial today »

On August 1, 2019, MasTec (NYSE:MTZ) reported better-than-expected Q2 2019 results and management [again] raised their full-year guidance. As you can expect, the results were well-received by the market which added to the already impressive stock performance for MTZ so far in 2019.

Data by YCharts

As I recently described, there have been legitimate reasons to stay long MasTec, and, in my opinion, the Q2 2019 results (and management's commentary) support the thought that this small-cap infrastructure company still has promising business prospects.

The Latest, Q2 2019

MasTec reported Q2 2019 operating results that beat the top- and bottom-line estimates. The company reported GAAP quarterly EPS of $1.58 (beat by an impressive $0.48) on revenue of $1.94B (beat by $140M), which also compares favorably to the year-ago quarter.

Source: Q2 2019 10-Q

Highlights from the quarter:

• Revenue grew by ~20% YoY with the Oil & Gas (21.8%) and Power Generation & Industrial (71.4%) segments being the biggest contributors to the company's top-line growth.
• Net income grew by 50% to $120M and the company's adjusted EBITDA came in at $240.7M (YoY growth of ~26%).
• The 18-month backlog now stands at $7.8B, higher by ~$50M when compared to the year-ago quarter.

There is a lot to like about MasTec's Q2 2019 results as each of the company's operating segments reported YoY top-line growth with the O&G leading the charge from an earnings perspective.

Source: Q2 2019 Earnings Presentation

The O&G segment has performed extremely well in the recent past after a few years of being a major drag on the company's consolidated operating results. Simply put, the heavy investments made during the industry downturn have really started to pay off over the last two-plus years.

Source: Q2 2019 Earnings Slides

And looking ahead, the prospects look just as promising as this operating segment's backlog increased by 14% YoY. It is, however, important to also note that MasTec is more than just an oil and gas company because almost the entire business portfolio is expected to perform well through 2019 - management tells a good story for what may come over the next two quarters.

The Bull Case Remains Intact

MasTec not only reported better-than-expect Q2 2019 results but management also raised their full-year guidance:

• Full-year revenue of $7.7B (from $7.6B).
• GAAP EPS of $4.93 (from $4.41) and adjusted EPS of $5.04 (from $4.55).
• Adjusted EBITDA of $836M or 10.9% of revenue (from $795M and 10.5%, respectively).

These are meaningful adjustments to what was already strong guidance for fiscal 2019. During the conference call, management spent a considerable amount of time talking up MasTec's business prospects in today's environment and they also stood by their previous call that this company is well-positioned for the next few years.

Source: Q2 2019 Earnings Slides

I believe that the most significant catalysts for this company over the next 18-24 months will come from the Communications division - i.e., FirstNet [here is a recent update made by AT&T (T)] and 5G rollout.

Source: Q2 2019 Earnings Slides

This company is firing on all cylinders and, in my opinion, the future looks even brighter.

Valuation

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

Data by YCharts

Additionally, MTZ shares are trading at attractive levels when compared to the company's own historical metrics, even after the recent run-up.

Data by YCharts

I do not believe that all of the company's long-term business prospects are fully baked into the stock, especially if the full-year 2019 guidance is achieved.

And lastly, let's not forget that management has been buying back shares hand-over-fist over the last two years.

Data by YCharts

What's not to like about a shareholder-friendly company that is trading at an attractive valuation?

Risks

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. To this point, management mentioned in the conference call (linked above) that AT&T made up almost 23% of total revenue for 2018 (down from 25% and 34% in 2017 and 2016, respectively), which goes to show just how important it is to monitor this risk factor.

Moreover, a U.S. recession would have a negative impact on the company's near-term prospects. Please also refer to MasTec's 2018 10-K for additional risk factors that should be considered before investing in the company.

Bottom Line

MasTec's Q2 2019 operating results and management's updated guidance prove that this small-cap company is well-positioned for the future. Long-term investors will be richly rewarded, in my opinion, if the company's story plays out like I believe that it will. This company has several significant tailwinds (FirstNet, 5G rollout, O&G recovery, Power stabilization, etc.) that could potentially make the bull case stronger over the next few quarters. As such, I believe that MasTec has promising long-term business prospects.

At the end of the day, MasTec's stock will go as the economy goes, so any type of market meltdown will likely negatively impact MTZ shares. But, in my opinion, the risk is currently to the upside. Therefore, investors with a time horizon longer than 2-to-3 years should consider significant pullbacks as long-term buying opportunities.

Author's Note: I hold a MasTec position in the R.I.P. portfolio, and I have no plans to sell any of my MTZ shares in the near future.

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, T. 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.