MasTec, Inc. (NYSE:MTZ) shares are up more than 17.65% this year and recently increased 2.67% or $1.2 to settle at $46.20. Fluor Corporation (NYSE:FLR), on the other hand, is down -6.97% year to date as of 12/05/2017. It currently trades at $49.21 and has returned 2.56% during the past week.
MasTec, Inc. (NYSE:MTZ) and Fluor Corporation (NYSE:FLR) are the two most active stocks in the Heavy Construction industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect MTZ to grow earnings at a 16.09% annual rate over the next 5 years. Comparatively, FLR is expected to grow at a 11.08% annual rate. All else equal, MTZ’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 3.64% for Fluor Corporation (FLR). MTZ’s ROI is 8.50% while FLR has a ROI of 6.90%. The interpretation is that MTZ’s business generates a higher return on investment than FLR’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. MTZ’s free cash flow (“FCF”) per share for the trailing twelve months was +2.91. Comparatively, FLR’s free cash flow per share was +0.13. On a percent-of-sales basis, MTZ’s free cash flow was 4.69% while FLR converted 0.1% of its revenues into cash flow. This means that, for a given level of sales, MTZ is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. MTZ has a current ratio of 1.70 compared to 1.60 for FLR. This means that MTZ can more easily cover its most immediate liabilities over the next twelve months. MTZ’s debt-to-equity ratio is 0.99 versus a D/E of 0.49 for FLR. MTZ is therefore the more solvent of the two companies, and has lower financial risk.
MTZ trades at a forward P/E of 14.82, a P/B of 2.81, and a P/S of 0.58, compared to a forward P/E of 19.90, a P/B of 2.08, and a P/S of 0.35 for FLR. MTZ is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. MTZ is currently priced at a -17.75% to its one-year price target of 56.17. Comparatively, FLR is 5.6% relative to its price target of 46.60. This suggests that MTZ is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.40 for MTZ and 2.70 for FLR, which implies that analysts are more bullish on the outlook for FLR.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. MTZ has a beta of 1.52 and FLR’s beta is 1.44. FLR’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. MTZ has a short ratio of 8.02 compared to a short interest of 4.54 for FLR. This implies that the market is currently less bearish on the outlook for FLR.
MasTec, Inc. (NYSE:MTZ) beats Fluor Corporation (NYSE:FLR) on a total of 9 of the 14 factors compared between the two stocks. MTZ is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. MTZ is more undervalued relative to its price target. Finally, BBBY has better sentiment signals based on short interest.