KeyBanc Upgrades Primoris Services, Says Stock Undervalued Versus Peers

Primoris Services Corp PRIM has many opportunities in large energy capex, and its transmission and distribution profitability is likely to improve in the near- to medium-term, according to KeyBanc Capital Markets.

The Analyst

KeyBanc Capital Markets’ Tahira Afzal upgraded Primoris Services from Sector Weight to Overweight and established a $28 price target. 

The Thesis

Primoris Services’ mega pipe projects are largely derisked, with Dominion Energy Inc D announcing the pushing of an Atlantic Coast Pipeline-related construction restart to Q3 and beyond, Afzal said in the Tuesday upgrade note.

This could have been an overhang into 2019, but the announcement has “notably derisked sentiment,” the analyst said. 

Since KeyBanc's EPS estimate for 2019 had been lowered to reflect a pushout of the project into 2020, the projection could prove conservative, Afzal said. Moreover, there seems to be enough mid-sized pipe work available to lend upside to the estimate, she said. 

Commentary from customers planning to increase their capex indicates some large projects, the analyst said. This represents attractive opportunities for Primoris Services, since its Industrials operations are still underutilized, she said.

As labor constraints continue, these opportunities could increase in scope into 2020, Afzal said. 

Against this backdrop, the discount at which the company’s stock is trading appears unwarranted, according to KeyBanc. 

Price Action

Primoris shares were up 2.56 percent at $20.45 at time of publication Wednesday. 

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