Strong Demand Will Drive Future Opportunities In Communications And Power Delivery

Key Takeaways

• Strong demand and backlog in non-pipeline, communications, power delivery, and clean energy segments will drive revenue and EBITDA growth.
  
• Federal investments and energy demand boost opportunities, with gas-fired projects enhancing pipeline infrastructure and long-term earnings.
  
• Political and project risks, including policy changes and uncontracted deals, could disrupt MasTec's revenue and earnings, especially in pipeline and clean energy segments.

Catalysts

An infrastructure construction company, provides engineering, building, installation, maintenance, and upgrade services for communications, energy, utility, and other infrastructure primarily in the United States and Canada.

• MasTec expects 14% revenue growth and over 25% EBITDA growth in its non-pipeline businesses for 2025, driven by strong customer demand and a growing backlog. This is likely to enhance revenue and EBITDA.
  
• The company has significant opportunities in its Communications segment, fueled by federal investment in broadband infrastructure and strong demand from hyperscalers, which is anticipated to drive revenue growth and improved EBITDA margins.
  
• MasTec's Power Delivery segment is anticipated to experience double-digit revenue growth due to significant investments in the transmission grid and a focus on meeting increased demand for energy, potentially impacting revenue and net margins positively.
  
• The Clean Energy and Infrastructure segment has seen record revenue and EBITDA levels, with expectations of continued backlog growth and improved execution leading to potential revenue and EBITDA expansion.
  
• MasTec sees a renaissance in gas-fired generation, which is expected to support pipeline infrastructure growth in 2026 and beyond, possibly surpassing 2024 revenue levels and contributing to long-term revenue and earnings potential.

MasTec Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MasTec's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.3% today to 3.3% in 3 years time.
• Analysts expect earnings to reach $515.2 million (and earnings per share of $6.58) by about April 2028, up from $162.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $606 million in earnings, and the most bearish expecting $453 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.3x on those 2028 earnings, down from 54.7x today. This future PE is greater than the current PE for the US Construction industry at 21.3x.
• Analysts expect the number of shares outstanding to grow by 0.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.75%, as per the Simply Wall St company report.

MasTec Future Earnings Per Share Growth

Risks

• Political uncertainty and potential policy changes around energy infrastructure, such as the IRA, could delay or disrupt projects, affecting future revenue growth and earnings.
  
• The completion of the Mountain Valley Pipeline impacts 2025 revenues due to a slowdown in large project activity, which could affect revenue and earnings if replacement projects do not materialize.
  
• Weather-related delays and execution risks in segments like pipeline infrastructure and clean energy could lead to higher costs and impact net margins and earnings if project timelines are extended.
  
• A significant portion of growth relies on projects and opportunities that are not yet contracted, posing a risk to revenue if expected deals are delayed or fail to materialize.
  
• A decline in pipeline segment revenue for 2025, with $1.8 billion projected versus $2.1 billion in 2024, poses a risk to maintaining margins and earnings without improved performance in non-pipeline segments.

Valuation

• The analysts have a consensus price target of $159.75 for MasTec 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 $200.0, and the most bearish reporting a price target of just $122.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $15.6 billion, earnings will come to $515.2 million, and it would be trading on a PE ratio of 30.3x, assuming you use a discount rate of 7.7%.
• Given the current share price of $114.25, the analyst price target of $159.75 is 28.5% 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.