'When?' Not 'If?' For Matrix Service Company

Summary

• When Matrix Service Company reported fiscal 2020 second quarter results in February, I was of the opinion the market overreacted. Since, the COVID-10 pandemic has driven share prices even lower.
• Matrix reported third quarter results on May 7th, validating the pandemic was causing business disruption. Revenue was down, and the company reported an adjusted loss of $0.02 on diluted shares.
• Its longer-term goal of revenue over $2 billion by fiscal 2022 may be jeopardized. But Matrix carries little debt and has ample cash with access to a decent credit facility.
• Acquisitions were always part of the strategic equation. The pandemic may facilitate such activity.
• Furthermore, its backlog is solid and should grow. The question is "when?", not "if?".

It was my opinion the market overreacted when the share price for Matrix Service Company (NASDAQ:MTRX) fell over 35% in early February after it reported fiscal 2020 second quarter results. Since, the negative impact from the COVID-19 pandemic has driven the price down another 35+%. It's now trading at a 67% discount to its 52-week high of $24.36 in December 2019.

Matrix Service Company provides engineering, fabrication, construction and repair & maintenance services in four segments - 1) Electrical Infrastructure, 2) Industrial, 3) Storage Solutions and 4) Oil Gas & Chemical. When crude oil prices were pressured in 2014, Matrix Service was one of the many victims. By 2016, the number of projects in its backlog had slowed, and margins were squeezed.

But the Matrix of 2014 is not the Matrix of 2020. In the middle of the prior decade, the company purposely diversified into other markets, specifically electrical infrastructure. It also focused on building its brand and reputation.

Matrix is paying particular attention to its exposure to business areas it no longer considers "aligned with its long-term growth strategy". In fiscal 2018, in the Electrical Infrastructure segment, Matrix decided to shift its focus from full EPC (engineering, procurement & construction) power generation projects toward smaller high-voltage projects. Of late, it has been focusing on "corrective actions to improve performance" in that segment. In its Industrial segment, it has wound down its exposure to the iron and steel industry.

In addition to the credibility of its business strategy, a sound investment thesis for an industrial company, as it relates to the pandemic, would likely be based on its liquidity and ability to outlast the COVID-19 crisis. The health of its backlog and loyalty of its customers would also be reasonable factors. Based on these factors, it appears Matrix Service has been unreasonably punished.

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

I will be recommending Matrix Service Company to my investment club for investment consideration.