Back in February I said engineering and construction firm Perini (NYSE:PCR) had an element of inconsistency to its revenue, but the valuation was attractive and the prospects for future business looked quite good. Judging by the company's third-quarter results, and the stock's move up of roughly 66% since mid-February, that's all working out as expected.
Revenue in the third quarter was actually down about 19% compared with last year, as new projects were delayed a bit. Oddly, though, gross profit actually increased and operating income was down only about 5% as the company's mix of business skewed more profitably in the quarter. At the bottom line, net income dropped a bit more than 7% from last year and made up all of 1.6% of the company's revenue.
The real story, though, is what's going on with Perini's backlog of future construction work. When last I wrote about it in February, the company had a backlog of less than $1.2 billion. This quarter's total? $3.3 billion. What's more, that figure doesn't include a recent $463 million project award from Foxwoods, nor a $3 billion project for MGM Mirage (NYSE:MGM) in Las Vegas. If you include these awards, and add in the backlog of recently acquired Rudolph and Sletten, you have a book of business totaling almost $8 billion.
Now, it won't be the case that all of that revenue will hit Perini's coffers in the next year or two. These are, after all, major multiyear projects in many cases. Nevertheless, company management is looking for earnings of about $1.30 to $1.45 next year -- a figure that could mean about 50% growth or more from this fiscal year.
Having doubled off its lows, the stock certainly isn't as cheap as it once was. Plus, there are some non-operating issues that investors have to consider. There is an ongoing dispute with some holders of convertible preferred shares: The company hasn't paid dividends on these shares for some time, and there is a difference of opinion between the company and shareholders as to a fair price for them. Additionally, there are some meaningful related-party transactions with a construction company owned by Perini's CEO that must be taken into consideration.
It would seem that investors have caught on to the improving environment for major construction. Not only have Perini's shares done well, but so have those of companies like Fluor (NYSE:FLR), Washington Group (NASDAQ:WGII), Foster Wheeler (NASDAQ:FWLT), and Shaw Group (NYSE:SGR). While there may yet be room for these builders to run, the easy money has already been pocketed and investors should tread carefully with stock selection.
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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).
