Tetra Tech Wins Orders - Analyst Blog

Tetra Tech Inc (TTEK) announced that one of its subsidiaries has obtained a contract to clean up radioactive contamination at selected Navy and Defense Department locations. Tetra Tech said it was one of five contractors to have got the work, which covers locations within the U.S. Naval Facilities Engineering Command's Southwest and Atlantic zones, as well as Defense Department locations nationwide.

The contract, including the base period and four years worth of options, is worth a combined $250 million.

The company has also been selected to provide program management and technical services for the Central Waterfront seawall replacement project for the Seattle Department of Transportation (SDOT). The SDOT estimates the value of this contract at approximately $18 million.

We expect the U.S. stimulus package to drive sales and profit growth over the next couple of years. TTEK is expected to continue to exceed expectations in 2010, given the company’s defensive growth profile, strong balance sheet, and the potential for further upside from stimulus spending and potential accretive acquisitions. TTEK has executed well, despite Federal funding headwinds and state and local budget constraints.
 
Federal bodies like The United States Agency for International Development (USAID), the Army Corps of Engineers, and the Environmental Protection Agency (EPA) are all receiving significant increases in funding even without taking stimulus spending into account. 

Inclusive of stimulus funding, these departments and the Dept. of Defense combined are responsible for approximately 40.0% of TTEK's revenue. 18% of quarterly revenues in the most recent quarter were sourced from U.S State and Local bodies. Moreover, TTEK is set to experience 25% funding increases in 2010.
 
Demand for state and local government services is cyclical and vulnerable to economic downturns. If the economy weakens, then its revenues, profits and its financial condition may deteriorate. The company derives a majority of its revenue from government agencies, and any disruption in government funding or in its relationship with those agencies could adversely affect its business.
 
A significant shift in U.S. defense spending could harm its operations and significantly reduce future revenues. Moreover, delay in the completion of the budget process of the U.S. government could delay procurement of its services and have an adverse effect on its future revenues.
 
Tetra Tech Inc. is a leading provider of consulting, engineering, program management, construction and technical services focusing on resource management and infrastructure.

We currently have an Underperform recommendation on TTEK.

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