Perini's Prodigious Performance

Here's the story of general contractor Perini (NYSE: PCR  ) in a nice bite-sized package: The company's backlog was about $1.2 billion at the end of 2004, nearly $8 billion at the end of 2005, and now $9 billion exiting the company's second quarter.

As that growing backlog might suggest, Perini is busy these days. Revenue rose 88% this quarter, and though a lot of growth has come from acquisitions, there's nevertheless growth in the underlying business as well. Looking at profits, the company saw gross margins decline due to a higher percentage of lower-margin business, while operating margins were hurt by a sizable ($8.6 million) charge related to stock compensation expense.

In some respects, it's easy to get excited about Perini's near-term prospects. Companies in the resort/hospitality sector, like MGM (NYSE: MGM  ) and Gaylord Entertainment (NYSE: GET  ) , have big projects on the books, and the duration of the building boom may get stretched out as building capacity grows more limited.

On the other hand, I'm not entirely thrilled with a recent management decision. The company withdrew a proposed $100 million debt offering -- in part, according to management, because of the market's negative reaction to the deal. But Perini still needs the added financing, and now it may end up paying more for it. I respect corporate managers' need to be sensitive to investor interests, but I also believe that management has an obligation to maintain the long-term interests of investors ahead of short-term concerns. In other words, if this debt offering was the company's best way to finance itself, it should have stuck by that decision.

Relative to its backlog, Perini does not seem too expensive compared to other large engineering and construction concerns like Washington Group (Nasdaq: WGII  ) or Shaw Group (NYSE: SGR  ) . Of course, these are different businesses with different backlogs, and Perini does not typically tackle the same scale of infrastructure, petrochemical, and power projects as some of these firms. That said, so long as investors remain confident about the pace of non-residential construction, Perini could build some further value.

For more constructive Foolishness:

Whatever your investing style, the Fool has a newsletter for you. Try any of our premium investing services free for 30 days.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 515322, ~/Articles/ArticleHandler.aspx, 4/24/2014 11:51:12 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement