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MasTec (MTZ) Rallies 134% in Past Year: More Upside Left?

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MasTec, Inc. MTZ has been benefiting from strong backlog and growth prospects of the segments coupled with the recent acquisitions.

Notably, shares of MasTec have gained 134.5% over the past year compared with the Zacks Building Products - Heavy Construction industry’s 97.8% rise. Apart from the above-mentioned tailwinds, the price performance was backed by a solid earnings surprise history. MasTec’s earnings surpassed the Zacks Consensus Estimate in the trailing 15 quarters. Earnings estimates for 2021 have moved up 6.1% in the past 60 days. This positive trend signifies bullish analyst sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

Major Growth Drivers

Robust Backlog

Being one of the largest clean energy contractors in the country, MasTec’s expertise in constructing wind farms, solar farms, biomass facilities, high-voltage transmission lines, substations, battery storage and hydrogen-enabled solutions uniquely position the company to enhance growth in this market. As of Mar 31, 2021, the company achieved an 18-month backlog of $7.9 billion, unchanged from the December 2020-end level. This backlog provides it with strong visibility into 2021. First-quarter end backlog at Clean Energy and Infrastructure improved $361 million sequentially, and consistent focus on carbon neutrality is expected to drive this segment.

In Communications Segment, with the recent 5G spectrum auctions now complete, the company expects revenue acceleration throughout 2021. As the largest wireless contractor in North America, MasTec is uniquely positioned to tap these opportunities. The communications segment continues to offer attractive upside opportunities, driven by 5G investment and accelerating spending by DISH and T-Mobile.

Notably, MasTec anticipates delivering strong revenue growth for the Electric Transmission segment in 2021. It also expects backlog to increase as the company has been awarded new MSA agreements and is in late stages of negotiations on a number of larger projects. For Oil & Gas, the company expects revenues to increase double digits in 2021.

Inorganic Drive

MasTec depends largely on acquisition of assets and businesses for growth. During the first quarter of 2021, the company made two acquisitions: a heavy civil infrastructure construction company (included within the Clean Energy and Infrastructure segment), and a pipeline integrity and gas distribution contractor (included within the Oil and Gas segment).

During 2020, MasTec acquired five businesses, including 96%-owned consolidated subsidiary of a heavy civil infrastructure construction company within the Clean Energy and Infrastructure segment; a utility service and telecommunications construction contractor and a wireless telecommunications business in the Communications segment; along with an electrical transmission services company. The company also acquired the assets of two entities, both of which are included within the Communications segment, one that specializes in wireless telecommunications and another that focuses on install-to-the-home services (which accounted for 4% of 2020 revenues). For 2020, acquisitions contributed nearly $230 million to total consolidated revenues.

Opportunities in Wireline/Wireless Businesses

MasTec has significant potential in the wireless business related to the densification associated with 5G deployment. Every major carrier has publicly disclosed plans and initiatives for 5G. Also, AT&T was awarded FirstNet, a nationwide public safety wireless network. Both 5G and FirstNet will be drivers for MasTec’s revenues. 5G significantly enhances opportunities for MasTec, based on the total number of network elements involved. The company anticipates strong nationwide fiber deployment projects from both telephone companies and cable TV companies that will provide it with significant opportunities over the coming years.

Federal Policies

The recent announcement of President Joe Biden’s agreement on a $973-billion infrastructure plan to build a modern sustainable infrastructure and a clean future will have major implications for the U.S. economy and construction industry over the next five years.

The President’s plan to create a $2.2-trillion fund for infrastructure and clean energy will boost the construction industry in the coming years. Biden’s scheme for accelerated investment includes far-reaching areas from roads and bridges to green spaces and water systems to electricity grids and universal broadband – to lay a new foundation for sustainable growth, compete in the global economy, withstand the impacts of climate change, and improve public health, including access to clean air and clean water. The aforesaid infrastructural expansion plan will be a boon for MasTec and companies like Dycom Industries, Inc. DY, EMCOR Group, Inc. EME and North American Construction Group Ltd. NOA and others in the same industry.

Superior ROE

MasTec’s superior return on equity (ROE) is also indicative of growth potential. The company’s ROE currently stands at 20.48%. This compares favorably with ROE of 10.07% for the industry it belongs to. This indicates efficiency in using its shareholders’ funds and MasTec’s ability to generate profit with minimum capital usage.

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