MYR Group (NASDAQ: MYRG) is a supplier of electrical construction services operating in the U.S. and Canada. The company operates in two segments, both of which are set to benefit from substantial upcoming infrastructure spending.
According to the White House, the passage of the $1.2-trillion bipartisan package contains $65 billion from which to rebuild the electrical grid. In addition, substantial funds dedicated to roadways and other projects will require electrical contractors, like MYR Group.
MYR Group stock is up more than 85% year-to-date, with more gains likely in 2022.
I am bullish on MYRG stock.
MYR Group
As mentioned, MYR Group operates in two segments: Transmission and Distribution (T&D) and Construction and Industrial (C&I).
The T&D segment provides all-important services building and maintaining electrical systems, including renewable energy sources. The country’s electrical grid is aging and will require significant maintenance and construction in the coming years, providing a tremendous market for this segment.
The C&I segment also fills a critical need. MYR Group’s services are used to design, install, and repair roadways, hospitals, airports, and other critical infrastructure. Both segments are growing revenues steadily, with compound annual growth rates of 10% for T&D and 25% for C&I since 2017.
Record Profits
MYR Group has been posting record profits even before the new infrastructure legislation. Over the trailing 12 month (TTMs), the company has generated over $110 million in operating profits.
This was a 32% increase over fiscal 2020, the previous record, when MYR Group produced income from operations of $83.7 million. These numbers are impressive considering there are only 17.1 million diluted shares outstanding. The TTM net income of $82.5 million provides $4.81 in earnings per diluted share, a healthy total.
The company is also very responsible with its balance sheet. MYR Group posted $73 million in cash on hand in the last report with only $4 million in long-term debt. Receivables were also larger than payables and accrued expenses. Because of these factors, the company has generated $154.8 million in cash from operations over the TTMs, or $9 per diluted share.
MYR Group trades at a reasonable valuation with a trailing price-to-earnings ratio of 22.7. The price-to-cash flow ratio is just 11.7 over the TTMs.
The company is a consistent performer that provides a much sought-after service in the market. With the addition of federal infrastructure dollars, this stock could continue to beat the market in the coming years.
Wall Street’s Take
Turning to Wall Street, MYR Group has a Moderate Buy consensus rating, based on just one Buy and one Hold rating. There are no Sell ratings, and the stock is quite under-covered on wall street.
The average MYR Group price target of $118 implies 9.7% upside potential.
Bottom Line
MYR Group operates two successful segments that are growing and profitable. The company has grown revenues and profits steadily over the years yet has fallen underneath Wall Street’s radar.
There is now a trillion-dollar infrastructure package that will provide tailwinds for several years. The company maintains a healthy balance sheet and trades at a very reasonable valuation. It has outperformed the market over the past three years, and this is set up to continue into 2022.
Disclosure: At the time of publication, Bradley Guichard did not have a position in securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >
