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MasTec: Clarity Finally Provided – Results Good, Outlook Great, Timing/Financial Overhangs Gone

Despite the impact brought on by previously announced delays in a key pipeline project and solar panel delivery uncertainty, the Q1/2022 earnings report was announced on May 5th with the results proving to be better than feared by the market, with guidance finally laying rest to the uncertainty with regards to timing delays and financial impacts. Though there was Mastec (MTZ) stock price weakness over the past quarter due to the lack of clarity on the aforementioned project delays, quarterly revenues, EBITDA and EPS came in ahead of consensus estimates and slightly ahead of internal company projections.

More specifically, FY/2022 revenues are now seen at $9.2B (previously $9.9B), adjusted EBITDA is seen at $875M (previously $950M) and adjusted EPS is now expected at $4.47 (previously $5.32). In terms of timing, the Mountain Valley Pass Pipeline project which was originally expected to be completed in 2022, is now delayed until 2H/2023, while delays to solar panel deliveries (due to an on-going Department of Commerce anti-circumvention investigation into the solar industry - specifically targeting Cambodia, Malaysia, Thailand and Vietnam which combined provide 80% of the solar panels sold to the US) should have a DOC decision by August 26. With the uncertainty of the financial and timing overhang finally gone, judging by the post-results stock reaction, the ultimate impact was not as bad as initially thought. Despite the delays, note that the revised FY/2022 revenue estimate of $9.2B still represents an all-time high.

Other good news from the earnings release included company backlog reaching an all-time high at $10.6B (up 7% sequentially or 35% since Q1/2021). Moreover, in line with the company’s concerted effort since 2020 to diversify off of oil & gas revenues, non oil & gas revenues increased by 65% since last year as recurring Master Service Agreement (MSA) contracts now account for 58% of total revenues, up from just 28% last year. This is important because MSA contracts are not only more stable and recurring, but coming from divisions such as the Electrical Transmission (Power) segment along with the Clean Energy & Infrastructure segment, they offer higher margins as well. The longer term secular tailwinds are also with the two above mentioned segments as there is a newfound understanding of how important baseload power generation is and how much grid infrastructure will have to be upgraded given the increasing prevalence of renewable power. When it comes to power generation and grid introduction, MasTec continues to be well positioned with business offerings for both power generation and grid modernization/distribution. Another positive was management re-stating that they would “opportunistically” re-purchase shares when deemed overly disconnected from fundamentals and/or in relation to company outlook. That said, YTD the company has re-purchased 680,000 shares (188,000 in Q1/2022 and 492,000 in Q2/2022 to date).



Project delays and DOC supplier investigations aside, we now have the quantifiable impacts and the outlook still looks great. Our thesis is playing out as MasTec continues to gain market share and transition to the increasingly recurring and higher margin MSA type contracts found in the Electrical Transmission and Environmental segments. We continue to believe that those two segments will continue to benefit from longer term secular tailwinds highlighted by the prevalence of renewable energy and with it, the necessary infrastructure work needed to modernize an ancient North American electrical grid network.

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