MasTec Is A Late Bloomer That’s Finally Coming Into Its Own (NYSE:MTZ) (2024)

Rich Karlgaard was a screwup.

He candidly admits that:

At twenty-five, despite a four year degree from a good university, I failed to hold a job beyond dishwater, night watchman, and temporary typist. I was ragingly immature.

Later in life, he understood why.

[M]y brain’s prefrontal cortex, the location of what brain researchers call executive functioning, was not fully developed. My brain, literally, was not ready to bloom.

He was not unique. The Wikipedia Late Bloomers page identifies far too many famous examples to list here.

Karlgaard, too, identifies others in the Introduction to his book “Late Bloomers.” (That’s the source of the above quotations.) He also describes famous early bloomers who quickly flamed out.

What? A screwup wrote a book?

Yes, indeed.

After getting his act together, he did a lot. In 1985, he co-organized The Churchill Club, a once famous Silicon Valley leadership group. In 1989, he co-launched Upside Magazine (“for Silicon Valley about Silicon Valley”).

In 1998, Karlgaard became publisher of Forbes Magazine. And today, he’s Forbes “Editor at Large/Global Futurist.”

Yes, you’re on the right site or app.

This is not Psychology Today. It really is Seeking Alpha.

The Karlgaard late-bloomer story can have huge investment implications.

Early business bloomers can and do eventually falter. I’ll bet, for example, you aren’t reading this on a Tandy TRS-80. That was an early personal computing trailblazer.

We often wind up poking fun of early leaders. The TRS-80 eventually became known as the Trash-80.

But Karlgaard is a metaphor for the flip side… late-bloomer businesses and companies.

MasTec (NYSE:MTZ) is among the latter. And it’s not just poised to bloom. It’s doing so while the world is propelling its industry forward with powerful secular tailwinds.

Coming to Grips with MasTec’s Track Record

I wasn’t initially drawn to MTZ by the late-bloomer story line. The company’s business profile is what grabbed me.

It fits a theme I love... secular industry growth.

I’m referring here to companies that are quite literally building the physical components of the newly accelerating digital world we’re developing.

Yes, AI is part of that. (I had to get this out of the way.) So, too, are climate change, digital health care, electric vehicles, digital manufacturing, semiconductor re-shoring, etc.

I previously addressed this theme with write-ups of the Invesco Dorsey Wright Industrials Momentum ETF (PRN), Quanta Services (PWR) and EMCOR Group (EME).

I’m adding MTZ to the group. And I’ll add more in the future.

As I typically do, I checked MTZ’s track record.

I know we care about the future, not the past. But companies evolve over time.

Revolutionary change is rare. Evolution is typical. So, I need to investigate troublesome track records.

And right away, I knew I’d have to dig here. Check this x-year price chart comparing MTZ with PRN, PWR and EME.

MTZ’s difficult past becomes even more apparent when we compare it only to PRN.

Oh, those downdrafts! What on earth happened?

If you’ve ever wondered why Seeking Alpha makes it so easy to find old, even very old, Transcripts, Analysis, News, etc., my MTZ inquiry is an example of the answer.

Going back in time, I expected to see explanations. I did.

And I expected to find reasons to disregard such past events. I didn’t.

I tried really hard to justify MTZ’s past. I want to like companies that fit within a theme I love. What can I say… I’m allegedly human.

But eventually, my inner Mr. Wonderful reared his head. (If you watch the “Shark Tank” TV show, you know who that is. If not, his name is Kevin O’Leary. He’s usually the bluntest Shark.)

“Stop the madness!” I thought to myself, imagining Mr. Wonderful chewing me out.

The voice was right. I had to stop trying to excuse the inexcusable. I had to admit the simple truth…

MTZ screwed up.

Unlike post-collegiate Karlgaard and many late bloomers, MTZ is not a young company.

Predecessor companies trace back to 1929. Today's entity was founded in 1994. It went public in 1998.

MTZ has long served Communication, Oil and Gas, Electrical Transmission and Power Generation customers. So have many others in its field.

What’s new for MTZ, and others, is the burgeoning scale of the field. Here are long-term trends favor MTZ, PWR and EME.

Notice the recent accelerations. But we see from this that some companies moved faster than others.

In terms of profit, however, MTZ stumbled out of the gate.

We see this too when we consider the full Construction and Engineering Industry.

(I prefer median comparisons since these aren’t impacted by wild distortions often caused by unusual data items, even in big companies that can dominate weighted averages.)

In this context, MTZ has been fine in terms of sales growth. But it hasn’t been effectively translating that to EBITDA or EPS.

Core fundamentals have likewise been uninspiring.

MTZ’s debt ratios aren’t disastrous. But they aren’t exactly good. Interest coverage has been weak.

Returns on assets and equity have been terrible recently.

These were erratic during MTZ’s early years as a public company. But from 2008 through 2021, return on assets and equity averaged 14.84% and 6.29% respectively. (Source: Excel download from Gurufocus.com.)

So what happened in the recent past?

MTZ has long been acquisitive. That contributed much to its evolution beyond its original core-market… wireline construction and installations to the home.

Acquisitions from 2008-20 were generally small. Based on numbers downloaded from MasTec Inc (MTZ) Stock Price & 30 Year Financial Data | GuruFocus, the annual average spent was $104.4 million. The phrase “tuck-in” periodically became relevant. That’s when a small newly acquired business blend with (tucks into) a larger subsidiary.

MTZ stepped up its purchases in 2021. It disclosed 14 purchases. And it recorded a whopping $1.2 billion is cash outlays. Long-term debt plus capital leases ballooned to $2.1 billion (from $1.3 billion in 2021).

In 2022, MTA followed up with five acquisitions. It spent $635.8 million in cash for these. Long-term debt plus capital leases jumped to $3.2 billion.

Integrating all that would have been a huge challenge for any company at any time.

A standard litany of risks attaches to such transactions. The new owner may not truly understand the business and its customers. The new owner bite off more than it can readily chew. The acquisition mess up the purchasers’ financials. Etc.

But this wasn’t just “any” time.

It was the often-sloppy climb out of the pandemic shutdown. Supply chain problems were everywhere. So, too, were economic fears given the 2022’s increases in inflation and interest rates. The war in Ukraine added pressure.

On top of all that, MTZ ran into problems with Infrastructure and Energy Alternatives (IEA). It acquired that utility scale renewable energy infrastructure specialist on October 7, 2022.

CEO Jose Mas discussed in the August 4, 2023, earnings call:

MasTec mastic pre IEA, we're expected to grow 18% organically….

So far, so good. But…

[O]ur Clean Energy and Infrastructure where we are having the most significant revenue challenges…. First, and second quarter revenues tracked generally in line. But as the second quarter develop, many of the projects that were supposed to start in the latter part of the second quarter, and even into the third quarter began getting pushed into later in 2023, or into 2024. As the year has played out, there has been a big difference in customers’ ability to execute on their project pipeline.

We knew that the project analysis would be very important in 2023. As evidenced by our legacy businesses expected 25% organic growth this year, we think we did a really good job of understanding that in our legacy business. While we're excited about the relationships IEA has and the demand they are seeing, we collectively misjudge IEA second half year project pipeline risks and potential. It's also important to note that these aren't canceled projects, rather deferred into future periods. While we're obviously very disappointed with this adjustment to guidance, we do still expect significant second half of the year revenue growth, both at IEA and for a clean energy and infrastructure segment.

Let’s refer to all this as the company’s answer to Karlgaard’s prefrontal cortex realization… the final seal on MTZ’s late-bloomer status.

Now, however…

MTZ is Growing Up and Hitting its Stride

In that same August 2023 earnings call, Mas expressed confidence in the future.

[I]t's taken us time to both get to know the IEA customer base, and the company’s thought process around revenue expectations. While we believe 2023 represented a unique set of challenges. MasTec’s detailed review and risk assessment process will add a lot of value to IEA and its ability to properly forecast revenue. We also believe that the industry is better prepared to deal with supply chain, interconnect and permitting issues going into 2024. Demand for our renewable services for 2024 is unprecedented.

Mas’ optimism reminds me a bit of the Amazon.com (AMZN) story I laid out on July 13, 2024. Bad times, earnings-wise, really were laying the groundwork for a better future.

The following tables suggest MTZ has, indeed, embarked on an upward earnings trajectory.

The segment data conforms that the “Clean Energy and Infrastructure” group (where IEA lives) has become a strong spot for the company.

On the whole, think now of MTZ as a portfolio of businesses. See it as analogous to a portfolio of stocks.

Not all oars will be in the water to the same degree all the time.

MTZ is a project-oriented company. So big projects will come and go from year to year.

Oil and Gas, for example, fluctuated with the coming s and goings of large diameter (i.e., big pipe!) projects. These declined in 2022. (That year especially hit by burn-off of pre-pandemic backlog.)

Now, however, the company is moving into a new phase. During the latest earnings call, Mas said:

As it relates to our leverage, we’re in great shape. We’ve been talking about paying down debt over the course of the last year. I think we’ve made great strides I think we’re in a position, quite frankly, to do anything we want as it respects to M&A. With that said, I think we’re really focused on organic growth. I think the organic opportunities in front of us are unbelievable. And I think that’s our primary focus. I think we’ll look at M&A maybe more for tuck-ins for really opportunities to open markets that maybe we’re not in, but I don’t think you should expect anything major from us on the M&A side.

That’s huge.

The former lawyer and junk bond fund manager part of me loves M&A. More work! But the equity investor side of me hates it.

On the other hand, I really love this statement by Mas on the latest call.

We expect second half revenues in 2024 to grow organically by nearly 20% compared to last year.

That’s music to my ears. Now, I and other like-minded investors are free to like MTZ and the businesses in which it operates.

Listing the opportunities across MTZ’s four divisions sounds like…

A Who’s Who (or, rather, a What’s What) In Secular Industrial Growth

The Communications segment was once about wireline. Now, it’s about wireless. With cell phones now ubiquitous, we don’t talk about this as much as we used to.

But that doesn’t mean there’s no more work or spending ahead. 5G, according to page 7 of the latest 10-K “will require a longer period of installation when compared to past generation wireless infrastructure changes.”

It’s about much more than cell phones. Internet of Things (IOT) is growing rapidly. We want smart cities, smart homes, smart farming, etc.

We need more and better tower capacity, higher bandwidth small/microcells, distributed transmission, and more fiber network expansion.

Here’s a summary of opportunities ahead for MTZ’s Communications group.

Meanwhile, anybody who follows the news had to know how critical Power Delivery is.

Maybe you haven’t heard that exact term. But I’ll bet you cringe when you hear about “the grid.”

That’s especially so when you hear about how old and creaky it is. Even social conventions are likely being upended…

Back in my youthful single days, talking about the weather on a date signified a relationship that was on a slow path to nowhere. I’ll bet it’s a lot different today. That’s especially so if there’s a heat wave or storm.

You may hear more in the news about “grid hardening.” That means weatherproofing utility power delivery capabilities. And that’s on top of regular maintenance and new capacity. Let’s remember what a power glutton AI is!

Here’s a summary of MTZ’s opportunities in this area.

So it’s ok now to talk about the weather on a date. Hipper still is framing it as “climate change.”

Not everybody believes in it. And not everyone supports action to address it.

That’s politics. We aren’t unanimous about anything. But nobody can deny what we actually see happening.

Weather is now more than legitimate dinner conversation. It’s serious politics and policy. Regulations are proliferating with respect to utilities, cars, buildings, etc.

It’s also serious activism. Depending on where you live, you may have gotten stuck in traffic when climate protesters blocked roads.

MTZ isn’t about climate politics. It’s just following the money. And that’s why it’s Clean Energy and Infrastructure segment is so important. It’s what will make the company’s recent IEA challenges worthwhile in the end.

The following image summarizes opportunities for this segment.

Many want fossil fuels to completely vanish. But wishes and reality clash. And the reality is that fossil fuels will be vital for a very long time.

That means MTZ’s Oil and Gas segment will stay busy.

Actually, in MTZ’s case, it’s mostly about gas… pipelines specifically.

You don’t have to take a bullish or bearish position on gas prices to invest in MTZ. That’s for those who invest in producers, and to a lesser degree, refiners.

Pipelines transport gas from one place to another.

Many connect wellheads to refineries and eventually local utilities. Others take gas to ports for shipment overseas. The U.S. is a huge gas exporter… especially given trade embargoes against Russia.

Better still, gas is a clean fuel.

That, however, doesn’t cool the ardor of activists who oppose pipeline construction. They don’t always have Washington’s ear. But for now, they do. So we’re not building as many new pipelines as we need.

But we’re transporting a lot of volume through the existing networks. And these need to be maintained. That’s keeping MTZ busy.

So, too, are ongoing efforts to reduce carbon emissions in this industry.

As growth businesses go, that portfolio is as good as it gets for those who don’t want to deal with the volatility of AI and related technologies.

Risks

I hear management loudly and clearly when it comes to improving the balance sheet.

MTZ has the capacity to do this.

But I learned in my junk bond days all about event risk. That’s when a company may do something to mess up a good liquidity situation. (It may, for example, make an unexpected big acquisition.)

So, until enough time passes for MTZ to deliver the better balance sheet it predicts, we must consider finances a source of risk.

And let’s not forget the economy. It’s tempting to think of an impenetrable barrier between cyclical (what we want) to secular (what we absolutely, positively need).

But that’s not the real world.

Any project can be delayed if business conditions get bad enough.

What to do About MTZ Stock

The P/E is an eye-opener.

So, I could easily say the company is great, but valuation precludes a Buy recommendation.

I started this analysis expecting to say that. And I wrote a “mental” draft in which I suggested waiting until the company shows it really has moved into the bloomer stage.

Also, I must admit recommending stocks with Seeking Alpha Valuations grades in the D to F range is getting to me.

I really am a value guy at heart. (I hate the recent AI-Tech correction as much as anyone!)

But I can’t help seeing where the world is going. And I can’t block out the fine print of valuation theory. It says you have to pay more for shares of companies with better prospects.

I don’t like paying 30+ times earnings. But the PEG tells us something. The P/E is justified by MTZ’s long-term (and credible in my opinion) earnings prospects.

Too, the modest EV/Sales ratio is flashing green.

Now, compare price charts for MTZ compared to EME, PWR, PRN and Nvidia (NVDA) over the past month.

First, notice that MTZ’s performance has been generally in line with its secular industrial cousins.

Notice, too, none in this group shared in the fate of NVDA.

This suggests Mr. Market understands and accepts secular industry valuations based on expected future growth. (Seeking Alpha valuation grades for PWR and EME are also in the D-F range.)

So MTZ shares are no longer being singled out for late-bloomer punishment. Seeing the Street’s willingness to accept MTZ’s valuation makes it comfortable for me to do likewise.

Meanwhile, MTZ’s technical chart indicators are uneventful.

The 10- and 50-day exponential moving averages are hanging around close to the price and one another.

Wake me up when we get some meaningful divergence.

Chaikin Money Flow (CMF) and the Chaikin Oscillator (CO) measure which party to trades is more motivated. CMF does it for institutional investors. CO does it for the market in general.

Both indicators are modestly below neutral. That isn’t great. But it’s not enough to dislodge the priority I’m placing on futures growth.

As I’ve said before, my investment stance depends mainly on whether I think a stock will be better than, in line with, or worse than the market.

Here’s how I apply that to the Seeking Alpha rating system:

• “Strong Buy” means I see the stock as being better than the market, and I’m bullish about the direction of the market.
• “Buy” means I see the stock as being better than the market, but am not confident about the market’s near-term direction.
• “Hold” means I see the stock as moving in line with the market.
• “Sell” means I see the stock as being worse than the market, but am not confident about the market’s near-term direction.
• “Strong Sell” means I see the stock as being worse than the market, and I’m bearish about the direction of the market.

Based on this scale, I’m rating MTZ as a “Buy.”

After 43+ years working for one investment research company or another, I finally retired. So now, I’m completely independent. And for the first time on Seeking Alpha, I won’t be working based on anybody else’s product agenda. I have only one goal now… to give you the best actionable investment insights I can.I have long specialized in rules/factor-based equity investing strategies. But I’m different from others who share such backgrounds. I don’t serve the numbers. Instead, the numbers serve me… to inspire HI (Human Intelligence) generated investment stories. I definitely understand quant investing, including factors and what not (AI before it was called AI). But I don't agree with what other quants do. Rather than be obsessed with statistical studies that are no good for any time periods other than the ones studied, I combine factor work with the underlying theories of finance including classic fundamental analysis to get the true story of a company and its stock. Investing is about the future. So numbers (which necessarily live in the past) can take us just so far. They’re at their best when they cue us into stories that shed light on what’s likely to happen in the future. And that’s how I use them,I’ve had a pretty colorful career. Besides a full range of experience covering stocks from lots of different groups (large cap, small cap, micro cap, value, growth, income, special situations … you name it, I covered it) I’ve developed and worked with many different quant models. In addition, I formerly managed a high-yield fixed-income (“junk bond”) fund and conducted research involving quantitative asset allocation strategies such as are at the foundation of what today has come to be known as Robo Advising. I formerly edited and or wrote several stock newsletters, the most noteworthy having been the Forbes Low Priced Stock Report. I previously served as an assistant research director at Value Line.I also have long had a passion for investor education, which has resulted in my having conducted numerous seminars on stock selection and analysis, and the authoring of two books: Screening The Market and The Value Connection.I’m looking forward to my new incarnation on Seeking Alpha. I hope you enjoy what I offer. But if you don’t, feel free to tell me why in the comment sections. I’m a big boy. I can handle criticism. (But please don’t call me “stupid.” That’s my wife’s job!)