Expect MasTec Shares To Continue Outperforming Over The Near Term

Following the underperformance of MasTec, Inc. MTZ shares, which have declined more than 88 percent over the last 12 months, D.A. Davidson’s Brent Thielman expects the stock to Outperform, both on absolute and relative terms, in the near term.

The analyst upgraded the rating on the company from Neutral to Buy, while raising the price target from $44 to $50.

Catalysts

Among the catalysts for the stock, Thielman listed bookings momentum, communications customer initiative developments and/or potential M&A, while near-term concerns relate to MasTec’s ability to improve upon its already robust earnings run-rate.

Approvals for natural gas pipelines have increased over the past two years, with the analyst noting that the pace is continuing.

Following discussions with industry contractors, Thielman mentioned that “industry capacity constraints may be reached in 2018. Amid this, announcements of new-build oil pipeline projects in the ramping Permian basin in 2018/2019 represent yet another potential 'capacity suck.'”

Other Positives

The analyst stated that MasTec’s Canadian pipeline business was “more speculative,” although it could prove to be a material lever.

“While current pipeline market strength is not entirely misunderstood, MasTec's potential to sustain growth into subsequent years appears to be,” Thielman went on to say.

In addition, the company’s underperforming transmission unit seems to be on the upswing, and the analyst expects abundance of project proposals to drive further bookings momentum.

“A return to mid-teens segment margins is not expected in the next two years, though operating improvement off 2016 losses should be at least a 3-year runway as the market begins to hit its stride,” Thielman explained.

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