Baird Upgrades MasTec, Predicts Return Of EPS Beats, Raises In Second Half

MasTec, Inc. MTZ shares have come under pressure due to concerns about a work stoppage at the Mountain Valley Pipeline project and weak cash flow. These concerns appear to be priced in, according to Baird. 

The Analyst

Baird analyst Andrew Wittmann upgraded MasTec from Neutral to Outperform with a $53 price target and designated the stock as a "fresh pick." 

The Thesis

The risk profile of the MVP project halted by the Federal Energy Regulatory Commission is not as negative as the consensus projection suggests, Wittmann said in the upgrade note. (See the analyst's track record here.)

Underlying pipeline EBITDA margins are trending at a high-teens run-rate, excluding the Rover Pipeline, which could be another catalyst when that project restarts, the analyst said. 

In 2018, $500-million-plus in cash flow from operations depends on Rover A/R collections, Wittmann said. 

Sentiment toward the stock is deflated, and shares did not suffer much on the MVP shortage, the analyst said. 

Baird highlighted the bookings ahead, including the two incremental larger transmission awards that are under verbal commitment.

The firm views MasTec's near-term fundamentals as solid and forecast the return of stronger earnings per share beats and raises in the second half of 2018. 

"We see risk-reward better balanced in the low-to-mid $50s, this is a shorter-term trading call, as was our spring downgrade." 

Baird said it will be less aggressive at share prices of more than $50.

The "Fresh Pick" designation for the stock suggests a good catalyst outlook for Q3 earnings on strong cash generation potential, Wittmann said.

The Price Action

MasTec shares were up 0.11 percent at $46.50 at the time of publication Tuesday. 

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