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MasTec Stock Is Estimated To Be Significantly Overvalued

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GF Value
Mar 29, 2021
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The stock of MasTec (NYSE:MTZ, 30-year Financials) is estimated to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $86.88 per share and the market cap of $6.4 billion, MasTec stock gives every indication of being significantly overvalued. GF Value for MasTec is shown in the chart below.

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Because MasTec is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 2.2% over the past three years and is estimated to grow 5.60% annually over the next three to five years.

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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. MasTec has a cash-to-debt ratio of 0.28, which ranks worse than 72% of the companies in Construction industry. Based on this, GuruFocus ranks MasTec's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of MasTec over the past years:

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Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. MasTec has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $6.3 billion and earnings of $4.39 a share. Its operating margin of 6.85% in the middle range of the companies in Construction industry. Overall, GuruFocus ranks MasTec's profitability as fair. This is the revenue and net income of MasTec over the past years:

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One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of MasTec is 2.2%, which ranks in the middle range of the companies in Construction industry. The 3-year average EBITDA growth is 12.1%, which ranks better than 66% of the companies in Construction industry.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, MasTec's ROIC was 8.11, while its WACC came in at 7.97. The historical ROIC vs WACC comparison of MasTec is shown below:

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Overall, MasTec (NYSE:MTZ, 30-year Financials) stock appears to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 66% of the companies in Construction industry. To learn more about MasTec stock, you can check out its 30-year Financials here.

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