Will MasTec Really See Earnings Soar?

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The past couple of years have been tough for MasTec (MTZ 1.17%). The energy industry's near-collapse hit the infrastructure construction and engineering company hard, and even the recent rebound in crude oil prices hasn't yet clawed back the bulk of the ground oil lost during 2015 and early 2016. Coming into its second-quarter financial report, MasTec investors have high hopes that the company's earnings will recover sharply now that the energy industry has apparently hit bottom, but those with more skeptical views question whether bullish shareholders are getting ahead of themselves. Let's take an early look at MasTec to see whether the ambitious expectations of those who see good times ahead for the company are realistic.

Stats on MasTec

Data source: Yahoo! Finance.

What's ahead for MasTec earnings?

In recent months, investors have actually had mixed views about MasTec earnings, cutting a nickel per share from their profit expectations for the second quarter but boosting their full-year 2016 and 2017 projections by roughly the same amount. The stock has climbed to levels it hasn't seen since 2014, adding another 11% just since mid-April.

MasTec's first-quarter report certainly didn't seem like the starting point for a big rally, but forward-looking investors perceived the company's future prospects as being promising. Revenue dropped 3%, sending adjusted net income down by about three-quarters. Gains from the communications segment offset weakness from oil and gas, but even energy-related business declines were more measured than they had been previously. The electrical transmission segment was weaker still, seeing its top line drop by a quarter. However, MasTec said that it would expand its construction activity in connection with two major pipeline projects to the Mexican border, and that -- along with a boost in the company's full-year 2016 guidance -- helped drive the stock upward.

How MasTec stands out in the crowd

One thing that investors have to pay attention to with MasTec is that its stock sometimes moves in tandem with competitors that have very different types of exposure to various geographical regions and industries. For instance, following the U.K. vote to leave the European Union, many engineering and construction companies saw dramatic declines, in part because investors rightly believed that the prospect of reduced spending from European governments on infrastructure projects could hurt their long-term prospects. However, MasTec doesn't really have any exposure to the U.K. or Europe, with almost all of its business concentrated on the U.S. and the rest of North America. As a result, the influence of global macroeconomic conditions on MasTec's future doesn't always track with peers with greater geographical diversification.

Still, there's definitely some risk that MasTec won't be able to sustain the pace of recovery that investors want to see. For the third quarter, those following MasTec already expect the company to double its earnings from the year-earlier quarter, with revenue growth accelerating to more than 25%. MasTec will have to maintain its earnings-growth rate throughout 2016 in order to produce the 120% boost in the bottom line in the current consensus forecast among investors. It's true that comparisons with earlier periods will be favorable to MasTec, but markets will have to cooperate to give investors the magnitude of rebound they want to see.

In the MasTec report, investors should watch not only for numbers to improve but also for more identifiable projects to appear for the company. By tapping into deferred projects that will hopefully get back on the active list in the months to come, MasTec wants to get itself back to its former growth trajectory. If markets cooperate, even the ambitious earnings growth that investors expect could be within MasTec's reach.