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Tutor Perini Corp. [NYSE:TPC] – A Constructive Pick

November 17, 2009 | About:
Tutor Perini Corporation offers diversified general contracting, construction management and design-build services to private clients and public agencies throughout the world. They provide general contracting, preconstruction planning and project management services, including the planning and scheduling of the manpower, equipment, materials and subcontractors required for a project. TPC also offers self-performed construction services including site work, concrete forming and placement, steel erection, electrical and mechanical, plumbing and heating, ventilation, and air conditioning (HVAC).

TPC shares have retreated from a 52-week high of $26.60 to today’s quote of $17.40 making them attractive again. An all-time high of $75.43 was hit during 2007 when better economic times permitted record EPS of $3.54.

In reporting their Q3 earnings of $0.54, TPC management indicated expectations of $2.60 /share for 2009 and $2.40 - $2.60 for 2010. Government sponsored projects will likely provide about 40% of 2010 revenues versus 20% of this year’s due to increased stimulus- related projects.

Here are the per share numbers from past years as reported by Value Line:



Year


Sales


C/F


EPS


B/V


Avg. P/E


2004


73.01


1.55


1.39


6.34


9.9x


2005


66.58


0.37


0.20


6.86


NMF


2006


114.59


1.85


1.54


9.18


17.2x


2007


171.50


3.94


3.54


13.65


13.9x


2008


117.14


1.72


2.07


23.56


14.3x




At the current price TPC trades for just 6.7x this year’s and< 7.3x the low-end estimate for 2010. It doesn’t seem farfetched to expect TPC shares could again trade for about 10x the $2.40 estimate for 2010 bringing a 12-month price target about 38% above the current price.

Is that a reasonable goal? TPC has actually changed hands at $26.60 during 2009 and hit peaks of $27.30, $33.47, $75.43 and $44.80 during the calendar years 2005-2006-2007-and 2008 respectively. Earnings are higher now than in any of those years except 2007 (when the price was as much as 4x higher than today).

Standard and Poors gives TPC their highest ranking for ‘Fair Value’ at 5+ (on a 1- 5 scale) and calculates a $24.90 target based on their 2010 estimate of $2.51 /share.

As of June 30, 2009 long-term debt was just 13% of capital and treasury cash equaled more than twice total debt.



If you’re comfortable with options you might consider this five-month play for a nice total return even if the shares do very little between now and next April…





Cash Outlay


Cash Inflow


Buy 1000 TPC @$17.40 /sh.


$17,400




Sell 10 Apr. $17.50 Calls @$2.30/sh.




$2,300


Sell 10 Apr. $17.50 Puts @$2.35/sh.




$2,350


Net Cash Out-of-Pocket


$12,750






If TPC shares merely creep above $17.50 (+1%) before April 16, 2010:

· The $17.50 calls will be exercised.

· You will sell your shares for $17,500.

· The $17.50 puts will expire worthless.

· You will end up with no shares and $17,500 in cash.

· You will have no further option obligations.

That best-case scenario result would be a $4,750 profit on a net cash outlay of just $12,750 for a cash-on-cash profit of 37% over the approximately 5–month trade horizon.

That would occur on any move of 1% or better from the $17.40 starting price.



What’s the risk?

If TPC shares remain< $17.50 on April 16, 2010:

· The $17.50 calls will expire worthless.

· The $17.50 puts will be exercised.

· You will be forced to buy another 1000 TPC shares.

· You will need to lay out an additional $17,500 in cash.

· You will have no further option obligations.

· You will end up with 2000 shares of TPC.



What’s the break-even on the whole trade?

On the original 1000 shares it’s their $17.40 purchase price less

the $2.30 /share call premium = $15.10 /share.

On the ‘put’ shares it’s the $17.50 strike price less the

$2.35 /share put premium = $15.15 /share.

Your overall break-even would be $15.13 /share.

TPC shares could fall be up to $2.27 /share (-13%) without causing a loss on this trade.



Disclosure: Author is long TPC shares and short TPC options.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.gurufocus.com/peter_lynch.php
http://www.TalkMarkets.com
http://www.MutualFunds.com

Visit Dr. Paul Price's Website


Rating: 3.8/5 (6 votes)

Comments

Dr. Paul Price
Dr. Paul Price premium member - 5 years ago


Guru David Dreman just initiated a position in TPC...
















TPCTutor Pe...[url=http://www.gurufocus.com/StockBuy.php?GuruName=David+Dreman]David Dreman[/url]2009-09-30Buy $14.18 - $21.6

($18.56)
New holding, 1276422 sh.
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


Tutor Perini Q4 profit beats Street view

* Q4 EPS $0.66 vs est $0.54

* Q4 revenue falls 33 pct

* Cuts 2010 EPS to $2.00-$2.20

* Cuts 2010 rev to $3.4 bln- $3.9 bln (Recasts; adds conference call comments)

BANGALORE, Feb 25 (Reuters) - Construction company Tutor Perini Corp (TPC.N) swung to a fourth-quarter profit that beat market estimates, partly helped by higher operating profit margins from civil segment and public works building projects, but cut its full-year outlook.

More than 40 percent of its operating income will come from its civil business during 2010, the company said on a conference call with analysts.

The company’s civil segment includes construction and rehabilitation of highways, bridges, subways, tunnels, airports, marine projects and waste water treatment facilities.

Tutor Perini, which provides general contracting and construction management to private clients and public agencies, said the realignment of U.S. forces is starting to generate project opportunities, specially in Guam, and should contribute to new work awards in the second half of 2010.

“Although on a slower pace than we originally anticipated, Black Construction in Guam is actively pursuing many significant construction programs for new U.S. military work that could enter backlog this year,” Chief Executive Ronald Tutor said in a statement.

The company, which cut its 2010 outlook citing sluggishness in the non-residential building market, now sees full-year earnings of $2.00 to $2.20 a share, on revenue of $3.4 billion to $3.9 billion.

It earlier forecast full-year earnings of $2.40 to $2.60 a share, on revenue of $3.7 billion to $4.2 billion.

Analysts on average were expecting 2010 earnings of $2.51 a share on revenue of $3.73 billion, according to Thomson Reuters I/B/E/S.

Q4 PROFIT TOPS STREET

For the fourth quarter, the company reported net income of $32.5 million, or 66 cents a share, compared with a net loss of $163 million, or $3.29 a share, a year ago.

Revenue fell about 33 percent to $1.08 billion.

Analysts on average were expecting the company to earn 54 cents a share, before special items, on revenue of $1.11 billion.

For the quarter, backlog of uncompleted construction work dropped 36 percent to $4.3 billion.

Shares of the company closed at $21.39 Thursday on the New York Stock Exchange

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