Growing Backlog And Market Opportunities Will Drive Future Success

Key Takeaways

• Strategic agreements and backlog increase indicate potential for long-term revenue growth and stability through consistent project flow.
  
• Opportunities from market drivers and core markets could lead to revenue growth and improved net margins through high-value projects.
  
• Challenges in the T&D segment, contract issues, and higher tax rates are impacting revenue stability and profitability, posing operational and financial risks.

Catalysts

Through its subsidiaries, provides electrical construction services in the United States and Canada.

• The backlog increase to $2.6 billion indicates a healthy bidding environment, suggesting future revenue growth as these projects materialize.
  
• Strategic expansion through multiyear master service and alliance agreements may enhance long-term revenue and earnings stability by securing consistent project flow.
  
• Key market drivers such as grid modernization, decarbonization, and infrastructure improvements offer opportunities for increased revenues as utilities make record capital expenditures.
  
• Growing demand in core markets like data centers, transportation, and clean energy signals potential for continued revenue growth and improved net margins through high-value projects.
  
• The new $75 million share repurchase program suggests potential earnings per share growth by reducing outstanding shares and enhancing shareholder value.

MYR Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MYR Group's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.9% today to 4.3% in 3 years time.
• Analysts expect earnings to reach $176.4 million (and earnings per share of $10.75) by about April 2028, up from $30.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.0x on those 2028 earnings, down from 60.7x today. This future PE is lower than the current PE for the US Construction industry at 21.3x.
• Analysts expect the number of shares outstanding to decline by 3.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.23%, as per the Simply Wall St company report.

MYR Group Future Earnings Per Share Growth

Risks

• The completion of certain clean energy projects in the T&D segment has led to a 24% decrease in revenue for this segment, highlighting challenges in maintaining growth in this area, which could impact future revenue streams.
  
• Decreases in revenue from C&I fixed price contracts were noted, which amid increased focus on T&E contracts, may impact long-term revenue stability if projects' mix does not provide consistent income levels.
  
• Continued project losses, especially in the T&D segment, with higher labor and contract-related costs, have resulted in decreased operating income margins, affecting profit margins and eventually earnings.
  
• The net income margin decreased due to ongoing inefficiencies and challenges in specific projects, indicating potential operational risks that could adversely affect future earnings.
  
• Higher effective tax rates in 2024 due to unrecognized deferred tax assets and permanent difference items add pressure on net income, potentially impacting profitability and earnings if not managed efficiently.

Valuation

• The analysts have a consensus price target of $142.8 for MYR Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $164.0, and the most bearish reporting a price target of just $124.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.1 billion, earnings will come to $176.4 million, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 7.2%.
• Given the current share price of $113.91, the analyst price target of $142.8 is 20.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.