MYR Group Shares Offer A Good Business At A Good Price

Q1 Issues Transitory

Analyst Andrew Wittmann noted the first-quarter results showed margins slipping due to weather-related productivity challenges as well as higher mobilization costs associated with a larger mix of small and medium projects. The analyst sees the weather-induced earnings miss to be a transitory issue.

The analyst feels the cost factors are transitory and not execution driven. The management, in fact, endorsed improving margins throughout the year, the analyst noted. Despite backlog slipping modestly, the analyst noted that revenues met expectations.

End Market Commentary Encouraging

Baird noted commentary on the electrical transmission market from multiple players as well as from its private company checks point to a broadly positive electrical transmission market. The firm also said the other end markets such as electric distribution and specialty electrical contracting services for commercial/industrial clients, especially in the Western United States, remain healthy.

"Commentary remains constructive on both near/intermediate-term opportunities, with opportunity for larger electric transmission awards (the best kinds of catalysts), most likely in 2018," the firm said.

"Broader de-regulatory environment is a positive."

Estimates Unchanged

Baird clarified its estimates are unchanged and assume only modest revenue growth in 2018, despite its Street-high estimates. Adjusted for the first quarter weather-related shortfall, the firm said its estimates also assume essentially flat year-over-year margins.

However, Baird thinks estimates have upside if larger projects return to market.

Positive Risk/Reward

With the valuation sinking to the lower end of the historical range and remaining at a discount to the peer group, Baird sees an opportunity toward $40. The firm thinks the downside risk to high-$20s, provide positive risk/reward.

Baird upgraded the rating on MYR Group to Outperform with a price target of $41.

At the time of writing, MYR Group shares were surging up 4.48 percent at $35.

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