Cliff Note #71- Matrix Services | $MTRX
BigCap Micro about to stabilize revenue and profitability
Themes:
BigCapMicro; Restructuring; Strong Earning Power Ranking; Diversifying Markets
Data
Revenue: $800M
Debt: $10M
Cash: $27M
P/E trailing 12 months: Losing Money
P/E 2024 Est: Losing Money
P/E 2025 Est: 12.7x
EV/S on 2024 revenue Est: 0.31x
EV/S trailing 12 months: 0.33x
More on Reasons to add to the Index, Content Supporting the Overarching Themes, Valuation, and Research Tasks…
Valuation:
Only has value on 2025 EPS estimates of $0.81. P/E of 15 = $12.5; P/E 25 = $20.25 (upside to estimates)
What they do:
Infrastructure services for customers in various energy markets.
What we like so far:
Company has spent the last few years working through lower margin backlog and replacing it with higher margins and longer-term projects, which should meaningfully impact gross margins and improve visibility. Furthermore, the company has reduced its exposure to the biggest cyclical segments by diversifying into markets that have more consistent and long-term growth tailwinds.
Caveats:
History of over promising/under delivering; Revenue lumpiness; Cyclical Markets; Not that undervalued, but we believe there is a good chance that the company can exceed growth estimates.
Quotes From Management
Press Release:
"The strong momentum in our markets is reflected in project awards of $497 million in our first fiscal quarter, resulting in a book-to-bill ratio of 2.5. We ended the quarter with a backlog of $1.4 billion, our largest backlog since June 30, 2015,” said John R. Hewitt, President and CEO. “We have good visibility into revenue and margins for the next several years, and recent large project awards will begin to show up in our results in the second half of this fiscal year. As the spending recovery in our end markets has materialized in a meaningful way, our strategic approach to the energy and industrial end markets we serve is being validated. We believe strong tailwinds, particularly in the energy markets, and our deep expertise and experience executing our clients’ mission-critical projects will drive our business for years to come.”
Q4 CC on diversification of served markets:
All these end markets continue to be supported by the strong tailwinds and macroeconomic drivers we have discussed before, which include global energy security, domestic energy supply assurance, clean energy transition goals, commodity demand to support renewables and infrastructure upgrades and industrial reshoring of manufacturing as well as federal infrastructure investments that will start to meaningfully flow into the project phase during calendar year 2024.
Q4 CC on Backlog:
I can confidently say that we're executing our strategy from a position of strength. Our backlog has grown by 27% from the end of the fourth quarter of fiscal 2023 and 126% from a year ago. At $1.4 billion, our backlog is at its highest level since June 30, 2015. Even with $1.6 billion of awards these past 4 quarters, our opportunity pipeline remains steady between $5 billion to $6 billion, providing a strong indication of the potential in our markets and ability to continue our long-term trend of backlog growth.
Q4 CC on restructuring:
Organization has been meaningfully transformed over the past few years. We are focused on the end markets that present the best opportunity for us to leverage our decades of experience. We have restructured our organization to be more cost efficient, while maintaining our skills, expertise and strong brand.
Research Tasks:
Understand cyclical nature of each market
Even though the company has reduced the exposure to cyclical industry, from 90% to 25%, still need to understand the impact that cyclicality could have on margins from this segment.
Understand risks related accounting around recognizing revenue as projects move through completion.
Our disclaimer: We may hold a position in the stock. This article does not constitute investment advice. We are not registered investment advisers. Investing in biotech/microcaps carries specific risks best discussed with an investment advisor. Always do your own due diligence.