Free Stock Research Report: URS Corp (URS)

Among the top institutional owners of engineering and construction firm URS Corp (NYSE:URS) are several hedge fund managers with an activist bent, such as Barry Rosenstein of JANA Partners, Larry Robbins of Glenview Capital Management, David Einhorn of Greenlight Capital, Clifton Robbins of Blue Harbour and Steven B. Klinsky of New Mountain Capital, most of whose stakes have increased during 4Q13.

Beating the market can be difficult when picking stocks on your own. One common source of alpha can be focusing on small cap stocks, which tend to outperform its larger peers over time. Another source of alpha can be following the smart money, by mimicking the trades of professional investors. Our research has shown that, by combining these two approaches – buying the most popular small-cap stocks recently purchased by hedge funds – one can outperform the market on average (read the details here).

URS Corp (NYSE:URS)

Last September, URS Corp (NYSE:URS) laid out plans to return $500M to shareholders by the end of 2015 through stock buybacks and dividends, funded internally from its free cash flow. More importantly, the company does not plan any major acquisitions over the next two years, which had been the largest use of its cash flow in the past (it has completed approximately $2B of acquisitions since the beginning of 2010). Coincidentally, this announcement came during a quarter in which several hedge funds purchased large amounts of the stock during the quarter. Assuming roughly $60M of annual dividend payments, its capital plan would imply share repurchases of $380M (or 11% of its market cap). Since the vast majority of the buybacks ($350M) will be completed in 2014, the impact to 2015 EPS should be maximized (at least $0.50 accretive, based on our estimate). URS does have $690M of debt maturing in Oct. 2016, which could decrease the amount of capital return to shareholders in that year but, as this debt is related to a credit facility (which tends to be maintained / refinanced for liquidity purposes rather than completely paid off), assuming URS’s business does not fall off a cliff, its cash flow generation and share repurchases should not deviate too much after 2015.

Following the company’s mid-February pre-announcement of disappointing 4Q13 results and lower-than-consensus 2014 guidance, due to execution issues in its Oil & Gas Division and project delays stemming from lower natural gas prices / pipeline capacity, the stock dropped 14% the next day and is down 12% YTD. With market expectations reset lower, URS has been setup for a rebound if it can demonstrate improved EPS through higher share repurchases.  Its free cash flow yield of 8.5% is double the level of peers but, as its capital allocation changes to one focused on returning cash to shareholders rather than growing through acquisitions, this disparity should narrow (a peer-like yield would imply a stock price more than double its current level). Any developments on increased ownership by activist investors, either new or existing, would also act as a positive catalyst.

After the market close on February 27, 2014, JANA Partners disclosed in a 13D filing that it increased its position by roughly 100,000 shares (for a 9.7% stake in the company) and will be taking on an activist role, with plans to increase shareholder value by discussing with management possible changes to its board, management, capital / corporate structure and other matters.

Disclosure: none

Recommended Reading:

Michael Zimmerman Is Betting on J.C. Penney Company (JCP), KKR Financial Holdings LLC (KFN) & Others

Free Stock Research Report: Allegion PLC (ALLE) 

Brian Sheehy and Iszo Capital’s Top Stock Picks

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!