Primoris Services Corporation (NASDAQ:PRIM) announced that it is planning to divest its underperforming Texas Heavy Civil unit, a division of its James Construction Group ("JCG"). The company believes that the unit is not aligned with its core business and after the divestment, it will focus on current and potential projects. By focusing JCG management on the Louisiana and Gulf Coast heavy civil markets, the company hopes to improve shareholder value.
JCG is part of Primoris' East Construction Services segment. The East Construction Services segment accounted for 28% of the total revenue during the second quarter of 2016. The segment recorded a 17.7% year-over-year decline in revenues. The Texas Heavy Civil unit will continue to operate as a division of Primoris until a buyer is found. Primoris has engaged a financial advisor to assist in the sale.
Primoris expects to record a charge for the divestiture in the third quarter of 2016. The company stated that due to the divestiture, the expected profitability of current construction projects will be affected. This impact includes a reduction of costs and estimated earnings in excess of billings and an increase to the reserve for anticipated job losses. Further, the fair value of the assets that will be part of the divestiture will have to be estimated by Primoris. The divestiture is projected to lead to a pre-tax charge of $35 million to $40 million for the quarter.
The divestiture will require an analysis of the goodwill amount recorded on the JCG books, and this analysis will result in an impairment of that goodwill. Based on its initial review, Primoris anticipates recording a non-cash goodwill impairment charge of $8 million to $10 million on a pre-tax basis.
PRIMORIS SERVCS Price
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Primoris is positive about bidding opportunities, which will continue to increase its backlog. Moreover, benefits from geography and market diversity, together with the expected boom in capital pipeline construction, will boost revenues.
Dallas, TX-based Primoris is a specialty contractor and infrastructure company that serves diverse end-markets. The company also provides a wide range of construction, fabrication, maintenance, replacement, water and wastewater as well as engineering services to major public utilities, petrochemical companies, energy companies, municipalities and other customers.
Zacks Rank
At present, Primoris carries a Zacks Rank #2 (Buy).
Other stocks worth considering in the construction sector are MasTec, Inc. (NYSE:MTZ) , Dycom Industries Inc. (NYSE:DY) and Orion Group Holdings, Inc. (NYSE:ORN) .
MasTec has delivered a positive earnings surprise of 51.52% over the past four quarters. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Dycom Industries, which carries a Zacks Rank #2, has reported an average positive earnings surprise of 16.66% in the past four quarters.
Orion Group Holdings, another Zacks Rank #2 stock, has an average positive earnings surprise of 101.19% in the four trailing quarters.
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