Indo-Pacific Contracts And Active Order Backlog Will Pave Future Success

Key Takeaways

• A robust backlog with higher-margin projects is likely to drive significant revenue and earnings growth for Tutor Perini in the coming years.
  
• Strategic project wins in the Indo-Pacific and anticipated dispute resolutions are expected to enhance cash flow and profitability.
  
• Potential project delays, dispute resolutions, and volatile earnings may negatively impact Tutor Perini's revenue growth, cash flow, and profitability.

Catalysts

A construction company, provides diversified general contracting, construction management, and design-build services to private customers and public agencies worldwide.

• Tutor Perini's record backlog of $19.4 billion, built on new awards with better margins and improved terms, is expected to drive significant revenue and earnings growth over the next several years.
  
• The company's focus on newer, higher-margin projects with substantial remaining scope is anticipated to enhance net margins and overall profitability.
  
• Tutor Perini's success in securing multi-award construction contracts (MACCs) worth over $32 billion in the Indo-Pacific region positions it for growth in a strategic market, potentially boosting future revenue.
  
• The expected resolution of disputes and subsequent cash collections later in the year might lead to stronger operating cash flow, which can positively impact net income.
  
• As large projects ramp up and deliver higher revenue, the firm expects its earnings for 2026 and 2027 to more than double the increased EPS guidance for 2025, significantly improving its earnings outlook.

Tutor Perini Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tutor Perini's revenue will grow by 11.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -3.8% today to 3.4% in 3 years time.
• Analysts expect earnings to reach $204.4 million (and earnings per share of $3.65) by about May 2028, up from $-163.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.0x on those 2028 earnings, up from -7.6x today. This future PE is lower than the current PE for the US Construction industry at 26.1x.
• Analysts expect the number of shares outstanding to grow by 0.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.22%, as per the Simply Wall St company report.

Tutor Perini Future Earnings Per Share Growth

Risks

• Concerns regarding potential project delays, slower ramp-ups on new projects, and lower-than-expected win rates for future bids could impact Tutor Perini's revenue growth and margins.
  
• The company's reliance on the resolution of various disputes for significant cash collections later in the year introduces risk to operating cash flow and net margins if these resolutions are delayed or unfavorable.
  
• The Building segment experienced a decrease in income from construction operations due to the absence of a prior year's favorable adjustment, highlighting potential volatility in earnings and net margins.
  
• Specialty Contractors segment posted a loss, and future profitability is uncertain, which may continue to be a drag on overall earnings if operating margins do not improve as expected.
  
• Inherent risks associated with forward-looking statements, including unforeseen project execution outcomes and legal decisions, could lead to variances in actual earnings, impacting revenue and profitability expectations.

Valuation

• The analysts have a consensus price target of $39.5 for Tutor Perini based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.1 billion, earnings will come to $204.4 million, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $23.63, the analyst price target of $39.5 is 40.2% 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.