Factors That Underscore Primoris' Solid Growth Prospects

Primoris Services Corporation’s (NASDAQ:PRIM) strategic acquisitions, solid backlog level and operational excellence bode well. The acquisition of Willbros Group, Inc. (“Willbros”), on Jun 1, 2018, has been driving its revenues significantly.

Although shares of the company have underperformed the industry so far this year, earnings estimates for the current year have moved 1.8% upward in the past 60 days, reflecting analysts’ optimism surrounding bottom-line growth potential.

Let’s delve deeper into the factors that substantiate its Zacks Rank #2 (Buy).

Acquisition & Joint Venture Bode Well: Primoris rides high on solid acquisition strategy. On Jun 1, 2018, Primoris had acquired Willbros, a specialty energy infrastructure contractor serving oil and gas, and power industries. Willbros’ Utility Transmission & Distribution business enhanced Primoris’ Master Service Agreement (“MSA”) revenue base. The Canadian operating centers of Willbros expanded Primoris’ services in Western Canada. The Oil & Gas Facilities business improved offerings in the company’s existing markets.

In the first quarter, Willbros contributed approximately 23.8% to total revenues and $7.6 million to gross profit. Notably, total revenues of $661.6 million increased 31.2% from a year ago.

Additionally, the company own a 50% interest in the Carlsbad Power Constructors joint venture (“Carlsbad”) and 50% interest in the “ARB Inc. & B&M Engineering Co.” joint venture (“Wilmington”). Both the joint ventures are engineering and constructing gas-fired power generation facilities based in Southern (NYSE:SO) California. These joint ventures helped it in the completion of a large power plant construction project in the Mid-Atlantic region and a methane plant project in Texas.

For full-year 2019, the company’s revenues are projected at $3.1 billion, up 5.5% year over year.

Robust Backlog to Drive Revenues: Primoris is poised to gain from its solid backlog position across businesses. As of Mar 31, 2019, the company achieved a record backlog of $2.94 billion, reflecting an increase of 6.5% from the comparable prior-year period. This marks the highest backlog in its history, reflecting strong end-market demand from both fixed and MSA for 2019 and beyond. Notably, it expects to realize approximately 80% of the backlog in the next four quarters.

Strength in Pipeline Segment: The Pipeline segment has been gaining considerable strength over the last few quarters. The segment specializes in a range of services including pipeline construction, pipeline maintenance, pipeline facility work, compressor stations, pump stations, metering facilities, and other services across the United States.

In the first quarter, the segment’s revenues grew an impressive 134.1% year over year, backed by progress on major pipeline projects in the Mid-Atlantic and West Texas, increased pipeline maintenance activity, along with positives from the acquisition of Willbros.

Solid Cost Management: Over the last few quarters, the company has been undertaking cost-control measures to boost profitability. Markedly, during the first quarter, it reduced SG&A expenses to nearly 6.5% of revenues compared with 7.3% in the prior-year period. Solid cost management helped it to generate higher profits. In the first quarter, the company generated adjusted earnings of 4 cents, four times higher than the year-ago period.

Notably, for full-year 2019, it anticipates earnings between $1.60 and $1.80 per share, up from $1.50 recorded in 2018.

Superior ROE: Primoris’ return on equity ("ROE") supports its growth potential. The company's ROE of 13.9% compares favorably with the industry's average of 12.3%, implying that it is efficient in using its shareholders' funds.

Other Key Picks

Other top-ranked stocks in the Construction sector include MasTec, Inc. (NYSE:MTZ) , Great Lakes Dredge & Dock Corp. (NASDAQ:GLDD) , and Quanta Services, Inc. (NYSE:PWR) . While MasTec sports a Zacks Rank #1 (Strong Buy), both Great Lakes and Quanta Services carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

MasTec surpassed earnings estimates in all the trailing four quarters, with the average being 11.2%.

Great Lakes and Quanta Services’ earnings for the current year are expected to increase 300% and 29.5%, respectively.

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