Matrix Service Company: A HULK - Healthy, Undervalued And Lesser-Known

Summary

• Matrix Service Company reported full-year results for its fiscal 2019 on August 28th. Revenue improved 29.8% year over year, and diluted earnings (excluding last year's impairment charges) improved 321%.
• The market initially reacted favorably to the report. But it pulled back as it digested the company's fiscal 2020 guidance and headwinds.
• Existing shareholders are likely frustrated. But the reaction means potential investors still have opportunity to build a position in this "HULK" of a company.

Many investors are searching for a HULK in which to invest. Healthy. Undervalued. Lesser-Known. Matrix Service Company (NASDAQ:MTRX) fits the bill.

The provider of engineering, fabrication, construction and repair & maintenance services reported full-year results for its fiscal 2019 on August 28^th. Revenue improved a staggering 29.8%, from $1.09 billion in fiscal 2018 to $1.42 billion in fiscal 2019. Each of the company's four segments - Electrical, Industrial, Storage Solutions and Oil, Gas & Chemical - generated positive operating income in fiscal 2019 as compared to only two in fiscal 2018. Diluted earnings increased from a loss of $0.43 per share in fiscal 2018 to $1.01 per share in fiscal 2019. Excluding $18 million in impairment charges in fiscal 2018, earnings would have equated to approximately $0.24 per share. Thus, even accommodating the exclusion, the year-over-year improvement in diluted EPS would equate to a phenomenal 321%.

Matrix Service Company began fiscal 2019 with backlog of $1.22 billion. During the year, the company was awarded projects of $1.3 billion. After generating revenue of $1.42 billion, it ended the year with backlog of $1.1 billion. This does mean fiscal 2019 ended with a book-to-bill ratio less than 1 at 0.92. However, a major project anticipated to close before the end of the fiscal year did slip into the next. As well, Matrix maintains the point-in-time ratio is “not an indication of a weakened market”.

“When we look at our funnel of project opportunities, we see a larger funnel today than we did when we ended fiscal 2019.”

In the fall of 2018, Matrix Service shared its longer-term target to generate over $2 billion in revenue by fiscal 2022. The company maintained its ability to reach the goal.

“We expect to grow organically year-over-year at a rate of 5% to 8%, with remaining revenue to

Analyst’s Disclosure:I am/we are long MTRX. 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.