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Jonathan Poland
Jonathan Poland
Articles (505)  | Author's Website |

Risk-Reward With Tutor Perini

A construction giant with short-term price appreciation potential

April 22, 2019 | About:

As the human species evolved from hunter-gatherers into massive clusters within cities, construction projects have only grown in size. In fact, spending in 2018 was north of $1.3 trillion according to the U.S. Census Bureau. For Tutor Perini Corp. (NYSE:TPC), its deep and rich tradition that stretches back over 120 years provides the trust and experience to take on lucrative projects like Las Vegas City Center or Encore at Wynn to 10 Hudson Yards and Queens Bored Tunnels.


Tutor Perini’s general contracting, construction management and design-build services are offered to private and public customers across a wide variety of industries, mainly in the United States. Business is good with 2018 revenue reaching upwards of $4.5 billion, but its margins are very low with gross profit just over 10% and net income a paltry 1.8%. This is not meant to be a growth story, but rather one of necessity.

Since it builds and performs maintenance on heavy civil projects, including road construction, mass-transit work and water facilities as well as residential buildings, Tutor has been able to backlog projects to the tune of $9.3 billion. Its backlog includes a number of projects in New York and California, areas that are believed to be in desperate need of updates and redevelopment.

This means growth is anticipated, at least for the next couple of years, with earnings per share estimates of $2.20 in 2019 and $2.75 in 2020. Of course, the skyscraper curse is still on the minds of many economists, especially as the Jeddah Tower is set to open in 2020, which may be an indicator as to the timing of the next global economic crisis.

With that in mind, Tutor is certainly priced like a crisis is coming. Yet, even during the U.S. housing crisis a decade ago, it turned a profit. While the industry average price-earnings multiple is 20, the price-book ratio is 1.8 and the price-sales ratio is 0.6, Tutor trades at 11.9 times earnings, 0.50 times book and just 0.20 times sales, all signs pointing to an undervalued stock.

If the company’s earnings match up with expectations, Tutor Perini could easily double by the end of 2020.

Disclosure: I am not long or short TPC.

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About the author:

Jonathan Poland
I spent more than 15 years helping DIY investors earn over 30% a year. Today, I help business leaders take those insights and build better assets. I rarely write about stocks that I own. Thanks for reading. Do your own analysis before investing.

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