Tutor Perini Corporation (TPC) research, news, and more from GeoInvesting

Company description

Mon, 18 Jul 2016 15:28:39 GMT

Tutor Perini Corporation, formerly Perini Corporation, is a construction company offering general contracting, construction management and design-build services to private customers and public agencies. The Company operates through three segments. The Civil segment specializes in public works construction and the repair, replacement and reconstruction of infrastructure. The civil contracting services include construction and rehabilitation of highways, bridges and mass-transit systems. The Building segment provides services to a range of building markets for private and public works customers, including the residential, hospitality and gaming, transportation, healthcare, commercial and government offices, education, biotech, pharmaceutical and industrial markets. The Specialty Contractors segment specializes in electrical, mechanical, plumbing and fire protection systems. It also offers a range of civil and building construction projects in the industrial and commercial markets.

Research

Mon, 24 Oct 2016 15:25:55 GMT

TPC ($19.20) announced a senior note offering via a press release this morning. At the same time the company reported preliminary results for its upcoming quarter in an 8-K filed with the SEC; we are still awaiting the release. TPC missed estimates on both and top and bottom lines. The 8-K says

Revenue. Management estimates revenue for the three months ended September 30, 2016 to be approximately $1.33 billion, consistent with revenue of $1.34 billion for the third quarter of 2015.
Net Income. Management estimates net income for the three months ended September 30, 2016 to be approximately $28.8 million, an increase of 46.2% compared to net income of $19.7 million for the third quarter of 2015. Net income for the third quarter of 2015 was impacted by a non-cash, pre-tax charge of $23.9 million ($13.8 million after tax), which the Company recorded for an adverse legal decision related to a long-standing litigation matter.

We had initial concerns about our TPC position due to the Glasshouse short article on the company. With Muddy Waters Research coming out critical of the company recently and poor preliminary results, we have decided to unwind the small position in the company that we owned.

Research

Wed, 03 Aug 2016 14:42:09 GMT

TPC ($24.71) On July 26, 2016 we stated we were taking a small position in TPC when the stock was trading at $24.52. While we stated we hate taking positions without having a chance to speak with management, we nibbled a small pre earnings position. While the Company missed both top and bottom lines, it maintained full year guidance . We may look to add on pullback if market overreacts to this earnings report. Hopefully now that the company’s quiet period is over we will have more success in securing a management interview.

Yesterday, after the close, TPC reported Q2 2016results:

Sales of $1.3 billion vs $1.3 billion in the prior year and below analyst estimates of $1.4 billion
Non-GAAP EPS of $0.45 vs $0.24 in the prior year but below analyst estimates of $0.51
Maintained full year guidance of sales to be $5.1 to $5.6 billion and EPS of $1.90 to $2.20, analyst estimate for full year 2016 sales are $5.3 billion and $2.08 in EPS.

Quotes from management:

“Our second quarter results reflect improved profitability in our Civil and Building segments, strong revenue growth in our Building segment and reduced corporate overhead expenses,” remarked Ronald Tutor, Chairman and Chief Executive Officer. “We expect even stronger operating performance in the second half of this year as several large, complex civil and building projects progress and contribute more of their respective profits. We have made good progress to date in reducing our unbilled costs and look forward to continuing to collect the substantial cash we are owed during the balance of the year.”

Investors should note, that a short thesis report was published by GlassHouse Research on 3/17/2016. The stock was trading at $15 at the time of the report, and has since rallied to new highs. We will look into the allegations of this report.

Research

Tue, 26 Jul 2016 14:55:22 GMT

Taking Small Long Position in TPC

Although we hate buying stock in a company without interviewing management pre-earnings, we plan on taking a chance with TPC due to strong commentary in press releases and conference call. Furthermore, we love that the company’s main driver of profit is coming from the “Rebuilding the U.S.” infrastructure theme that we’re familiar with and have followed for months now.

We are taking a very small position into earnings as we continue to try and secure an interview with management and construct valuation scenarios.

TPC ($24.52) - On July 13, 2016, wealerted you via premium tweet that we are in the early stages of our due diligence process on TPC and added it to ourinfrastructure screen. We have still been unsuccessful in securing an interview with management but here is our initial take on the story.

TPC is a general contracting, construction management and design-build services business that is well- diversified and has worldwide reach. The company operates in three segments:

Civil – public works construction and repair, replacement, and reconstruction of infrastructure including highways, bridges, mass transit systems, and water treatment and wastewater treatment facilities.
Building – serves specialized building markets including hospitality and gaming, transportation, healthcare, offices, sports and entertainment venues, educational, correctional facilities, etc.
Specialty Contractors – provides electrical, mechanical, plumbing, HVAC, fire protection systems, etc., services to industrial, commercial, hospitality and other markets.

Reasons for tracking:

Riding the rebuilding of the U.S. infrastructure theme: The Civil segment is what has piqued our interest. During the three year period 2013 -2015, Civil generated only 37% of total revenue but 78% of operating income. In 2015, Civil accounted for 38% of TPC’s $4.9 billion revenue and 92% of operating income. Civil is therefore the segment that drives TPC’s profitability. Not only does the Civil segment generate the majority of TPC’s operating income, but it also has the strongest tailwinds behind its business. The recently passed $305B 5-year federal highway bill will greatly boost the already robust opportunities for the Civil segment. Further, both political parties in the ongoing U.S. presidential campaign have stressed the need to aggressively address the country’s crumbling infrastructure.

All Segments are contributing to the topline: It is not just the Civil segment that has strong prospects, an investorpresentation in May 2016 gives an upbeat outlook for TPC’s business segments with a $36 billion bid pipeline over the next 12-18 months including Civil, $21 billion, Building, $13 billion and Specialty Contracting, $3 billion. Demonstrating management ability to close on opportunities, the company wasawarded a $100 Million Contract for Expansion Project at The Cordish Companies’ Maryland Live! Casino in June 2016.
Volatility in margins are being addressed: Also of note, the company is addressing a key factor that has contributed to its historically volatile margins and profits and, therefore, a relatively low P/E ratio. Management emphasized in theQ1 2016 CC that they are, “intensely focused on resolving numerous claims and unapproved change orders as well as billing and collecting other unbilled amounts which will allow us to convert these unbilled costs to cash.” Those efforts are paying dividends and should lead to improved cash flow and more stable and predictable margins in the future. Comments from Q1 2016 TPC conference call:

“We’re starting to see considerable traction in our efforts as we have made very good progress in the first quarter of 2016. Our cost in estimated earnings and excess of billings declined by nearly $50 million during the quarter, the largest quarterly reduction we’ve had in more than eight years. In addition and certainly influenced by the reduction in our unbilled cost balance, we generated $60 million of operating cash for the quarter, our strongest operating cash flow for any first quarter in the last eight years.”

Analyst estimates are strong: After a prolonged period of inconsistent quarterly growth in EPS analyst estimates have the company growing YoY on a quarterly basis for the next 6 quarters.

Comments from Q1 2016 conference call were decidedly strong

“Our civil business just remains very strong and without naming any specific projects, because I don’t want any of our owners to think we might getting unjustly enrich. Our civil business is from a margin standpoint as well as the backlog doing better than we’ve ever done, it’s going remarkably well and I think we’re going to see ramped up revenue and the profit that goes with it.

I think it’s safe to say without divulging too much to our competitors that there is no question we have increased our margins. Competition in the very large work is limited to say the least. We’re getting ready to propose on a $1.5 billion tunnel and subway job in Los Angeles, there is only two other bidders. We think we have an excellent opportunity. We are quoting on $1 billion job that seems all over the country. And very candidly in the civil business as I’ve said before, there are very, very few contracts in the U.S. that can both financially and physically take on these very large projects.

I think with that highway bill we’re looking about a year before it hits us in the significant opportunity and then usually months thereafter you see backlog increase for all of us that do that type of work.

As a result of the large new awards mentioned as well as various others, our backlog increased 9% sequentially to a new record of $8.2 billion. The largest it has been since the third quarter of 2008. Our book-to-burn ratio was strong at 1.6% and our backlog composition now stands at 41% civil, 35% building and 24% specialty. So nearly two thirds of our backlog continues to be comprised of higher margin civil and specialty work. Strong backlog and large volume of perspective work continues to support a favorable long-term outlook for growth in profitability.

Valuation:

We think that TPC should currently trade at a minimum PE of 15X its forward earnings estimates, or $32.85. However, we think there is a good chance that shares can command a PE of 20X to 25X on 2016 earnings by the time year end numbers are released. This would translate into price targets ranging from $41.60 to $52.

Caveat:

Volatility in margins
Estimates are highly contingent upon the company winning its share of contracts
Again, we have yet to interview management, a key part of our due diligence process

Research

Wed, 13 Jul 2016 14:51:30 GMT

TPC ($25.12) - Yesterday, via premium tweet we stated:

“On the heels of strong performance of $NVEE pick, we are adding $TPC to our infrastructure screen as we begin our due diligence.”

We are in the early stages of our diligence process, but have added TPC to our infrastructure screen due to analyst estimates calling for solid revenue and EPS gains for the next 7 quarters. The Company has been crushing estimates the last several quarters. With $5 billion in revenue, TPC is similar to a large cap version of NVEE in that one of the company's segments (40%) is benefiting from the rebuild of the U.S. infrastructure.