MasTec Defies the Energy Bust With Strong Growth

By Markets Fool.com

Most companies that have exposure to the energy industry have suffered greatly over the past couple of years, as oil prices have plunged and haven't been able to muster a strong rebound. For MasTec (NYSE: MTZ), the oil and gas industry plays a key role, with energy companies demanding its infrastructure construction services. Coming into Thursday's third-quarter financial report, MasTec investors were quite optimistic that the company would be able to bounce back from recent adversity, and MasTec's results were even better than most investors were looking to see. Let's take a closer look at how MasTec did during the past quarter and whether it can keep up its positive momentum going forward.

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Image source: MasTec.

MasTec soars higher

MasTec's third-quarter results were incredibly strong, given the tough conditions in the energy industry right now. Revenue jumped by 43% to $1.59 billion, easily outpacing the 35% growth rate that most investors were expecting from the infrastructure construction specialist. Adjusted net income more than tripled from year-ago levels to $66.3 million, and that produced adjusted earnings of $0.81 per share. That number compared favorably to the consensus forecast of $0.69 per share among those following the stock.

Taking a closer look at how MasTec's businesses did, the shocking takeaway was that the company benefited greatly from its oil and gas segment. Energy-related revenue soared by 80%, bringing in nearly half of MasTec's total revenue and making energy the most important segment for the overall company during the quarter. Adjusted pre-tax operating earnings for the oil and gas business more than doubled during the quarter, representing more than two-thirds of MasTec's total.

MasTec's other businesses also had solid performances. Sales from the communications segment, which had been the largest revenue producer for the company until this quarter, were up more than a fifth, and pre-tax operating earnings for the segment were up by nearly a quarter. Sales from electrical transmission rose more than a third, allowing the business to narrow its pre-tax operating loss from a year ago, and the power generation business showed more modest rises in segment revenue and profit.

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CEO Jose Mas didn't hide his happiness at the way that MasTec performed during the quarter. "Our third-quarter results significantly exceeded our expectations," Mas said, "primarily due to strength in our oil and gas segment." The company has also improved its working capital management practices to strengthen its balance sheet and capital structure, and that should help foster growth in the future.

Can MasTec keep succeeding?

MasTec sees no reason to think that the good times will end anytime soon. In the CEO's words, "We continue to have clear visibility for significant new project opportunities in the oil and gas segment for 2017 and beyond, and we expect to end 2016 with record oil and gas segment backlog."

The company's strong results led MasTec to boost its guidance for the full year, a move that we've already seen in past quarters. MasTec now expects to bring in about $5.1 billion during 2016, and I believes it will be able to post adjusted earnings of $1.73 per share. Those figures are both well above the consensus projections among investors going into the report. Fourth-quarter projections were equally solid, including revenue projections for $1.3 billion and adjusted earnings expected at $0.54 per share.

MasTec investors were ecstatic about the news, sending the stock soaring by 13% in after-hours trading following the announcement. Given that it has been able to keep itself strong in the energy arena even under tough industry conditions, MasTec has made its long-term shareholders extremely optimistic that the company can continue to be a bright light in the sector and keep producing the growth that will set it apart from its peers in the space.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends MasTec. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.