Shares of infrastructural engineering and construction company MasTec (NYSE:MTZ) rose 11.4% in April, according to data provided by S&P Global Market Intelligence. The gains came amid an increasing sense of optimism regarding the state of its end markets and the potential for the company to benefit from President Biden's proposed infrastructure bill.
MasTec's key end markets are the communications industry ($2.5 billion in revenue in 2020) and the oil and natural gas pipeline industry ($1.8 billion). It's also involved in the clean energy and infrastructure ($1.5 billion) spaces. However, its oil and natural gas business delivers earnings-margin percentages in the high-teens to low 20s, while its clean energy and infrastructure segment produces margins in the high-single-digit to low-double-digit percentages.
Meanwhile, management expects that its fourth end market, namely electrical transmission ($500 million), will deliver earnings margins in the low teens.
With oil prices up in 2021, there are understandable expectations that energy-related capital spending could improve in 2022. Meanwhile, MasTec has growth opportunities driven by the continuing rollouts of 5G networks. Add in the possibilities of a major burst of federal infrastructure spending and the Biden administration's focus on promoting clean energy, and it appears that MasTec has an array of catalysts that could propel it to a long period of growth.
The increase in the price of oil is real, and so is Washington's desire to move ahead on an infrastructure bill. While there are no guarantees that either of those will lead to significantly enhanced earnings for MasTec, they do suggest that the company will be able to maintain a strong growth rate even after the deployments of 5G networks are largely complete.
As such, the market has been pricing in the company's ability to maintain earnings growth through the economic cycle.
The early evidence suggests that oil and natural gas companies haven't shifted into spending mode just yet, so it's probably a bit premature to expect positive words from management regarding spending on pipeline infrastructure. Still, the longer the price of crude oil stays above $60 a barrel, the more pressure will build on those companies to boost their capital spending. Meanwhile, momentum is building in MasTec's clean energy and infrastructure segment.
Investors will be looking out for signs of improvement in those end markets in 2021.