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.

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

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