TPC - Miller Value Partners - Tutor Perini: Trading At A Deep Discount
Summary
- During the quarter we also scaled up a new investment in Tutor Perini.
- TPC appears well positioned to benefit over the next couple of years from the recently passed $1.2T federal infrastructure law.
- Tutor’s recent new business wins are helping to rebuild their pipeline.
- Tutor has the potential to generate earnings more than $3/share.
The following segment was excerpted from this fund letter .
Tutor Perini ( TPC )
During the quarter we also scaled up a new investment in Tutor Perini. The company’s Civil segment is a leading provider of complex construction and rehabilitation of critical infrastructure (highways, tunnels, bridges, mass transit). Tutor has been in business for over 125 years and appears well positioned to benefit over the next couple of years from the recently passed $1.2T federal infrastructure law.
Their integrated business model provides competitive advantage in bidding, providing greater transparency in price and greater control of the large project work schedule. TPC’s stock price has been more than cut in half over the past year (near early 2020 lows) as the Covid outbreak caused a delay in larger Civil contracts. This is now weighing significantly on segment margins, creating an earnings trough this year. Tutor’s recent new business wins are helping to rebuild their pipeline (Civil segment backlog approaching $5B which is 200% higher than segment current annual revenue run-rate).
In addition, the company has been working through the legal system to litigate for past due work. While Covid delayed some legal proceedings, these outstanding cases are now being settled, having recently added more than $100M to cash flow. With $500 to $700M of outstanding receivables, ongoing settlements provide a nice margin of safety to the balance sheet. This has the potential to generate significant incremental free cash flow.
TPC’s shares look significantly mispriced, trading at a deep discount to tangible book value. Over the next couple of years, the company has the potential to generate earnings more than $3/share, as the Civil segment returns to historical average margins. Upside potential appears more than three times the current market price as normalized earnings and free cash flow yield is greater than 40%.
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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Miller Value Partners - Tutor Perini: Trading At A Deep Discount