Company Spotlight: Tetra Tech, Inc. (NASDAQ:TTEK) Green from Greening - The Good: Diverse revenue stream, focused on the environment.
- The Bad: Stock carries relatively high valuation.
- The Beautiful: Multi-year contracts assure base earnings for years.
December 24, 2007 - Tetra Tech, Inc. (TTEK-NASDAQ) puts technical know-how to work. The environmental management, consulting, and technical services group focuses on resource management, infrastructure, and communications. Services include environmental engineering, restoration, groundwater cleanup, watershed management, and operations and maintenance support. For major network services providers, the group offers broadband network planning, development, and deployment assistance. Tetra Tech provides engineering and construction services for public and private facilities and designs and builds water supply systems. US federal contracts account for nearly half of annual revenues.
Tetra's cooking on all burners. Its pipeline is full of new projects, four of them over $100 million each with clients like the Army Corps of Engineers, the U.S. Army, the FAA and the Navy. These contracts are for multi-year programs that are task order-driven and should contribute to the bottom line for years to come. There's also increased demand for water projects for the infrastructure segment of TTEK which raised prices recently to state and local levels. Management stated that a new focus on Natural Resource Management should pay off soon with the emphasis being on mining and alternative energy. On top of all that the company is enhancing its core business with many new environmental projects.On November 27, the company announced a new $75 million, 5 year contract with the Environmental Protection Agency to provide engineering and scientific services for U.S. watershed management programs. Tetra Tech will support the EPA's effort to strengthen state and tribal watershed management, focus programs on threatened and impaired U.S. waters and solve pollution problems. Services provided will include calculating total maximum daily loads, software development and technical training. All of the good news is showing up in earnings. In 2005, they dipped to 12 cents a share, down from 40 cents in 2004. In 2006, they bounced to 66 cents, then 79 cents (fiscal year ends in September). Analysts are looking for 95 cents in 2008. Using forward earnings, that gives the stock a P/E (price to earnings) of 23. Not cheap but understandable given the potential the stock seems to possess. Other numbers: Projections for earnings growth: 11% a year, on average, for the next 5 years; revenues to grow by 3%, on average in same time period. Current assets are 1.5 times current liabilities. Net profit margin is 4.6% with expectations of 5.1% in 2008, going to 6.1% in 3 to 5 years. Return on equity was 11.2% in 2007, projection of 12% in 2008. Market cap is $1.2 billion on 58.457 million shares. There is no dividend. If you're looking to invest in a company with an environmental focus, Tetra Tech deserves your attention. With multi-year contracts as a base for earnings, the stock should perform well for years. But much of that good news is already in the price so entry at a lower level would seem prudent, if it ever comes. Company Web site: www.tetratech.com - Ted Allrich |
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