Glenview Capital, a hedge fund managed by Larry Robbins, owned 4.6 million shares of URS Corp (NYSE:URS), a $3.5 billion market cap company providing engineering and technical services, according to a recent filing with the SEC. We track quarterly 13F filings from hedge funds such as Glenview and other notable investors; while we primarily work on developing investment strategies based on the included information (for example, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year), our database also allows us to see what Robbins has owned over time. It turns out that at the end of December the fund had owned 3.7 million shares (see more stocks Glenview owned) so the shares they have added in the last two months have built on a large position. Glenview now has 5.9% of URS’s total shares outstanding. Robbins had previously worked at billionaire Leon Cooperman’s Omega Advisors.
In the fourth quarter of 2012, URS Corp experienced a 24% increase in revenue versus a year earlier. If we strip out a goodwill impairment and restructuring costs from Q4 2011, then operating income grew by 17% so operating margins appear to be fine. However, higher interest expenses shaved off about two-third of that growth when converting operating to pretax income. For the year as a whole, pretax income increased by 5%. While we’d prefer to see more of the sales growth contributing to the bottom line, we suppose that it could be positive that operating income is doing well; further increases in sales might not require higher interest expenses, and so might directly increase net income.
The stock trades at 11 times trailing earnings, which represents value levels considering that earnings are actually growing. We would note that URS Corp does generate some business from military operations, including weapons refurbishment and military logistics, so it is possible that the company will be impacted by reductions in U.S. military spending. Analyst consensus for 2014 implies a forward P/E of 9, so the sell-side apparently expects continued earnings growth over the next two years.
Billionaire David Shaw’s D.E. Shaw owned about 930,000 shares of the stock at the end of the fourth quarter of 2012, though this was down 30% from three months earlier (find D.E. Shaw’s favorite stocks). AQR Capital Management, managed by Cliff Asness, was also selling shares and began January with about 480,000 shares of URS in its portfolio (check out Asness’s stock picks). These two hedge funds, along with Glenview, made up three of the five largest holders of the stock in our database of 13F filings.
AECOM Technology Corp. (NYSE:ACM), Fluor Corporation (NYSE:FLR), KBR, Inc. (NYSE:KBR), and Jacobs Engineering Group Inc (NYSE:JEC) make good peers for URS. It turns out that in terms of forward earnings estimates all four companies trade at small premiums, with P/E multiples between 10 and 14. In addition, the trailing earnings multiples are generally well higher than where URS trades: Fluor and KBR actually carry trailing P/Es more than 20. So these four comparable companies are more expensive in terms of their trailing earnings and are only brought to slightly higher forward multiples by more optimistic Street expectations. With KBR and AECOM reporting a decline in revenue and net income in their most recent quarter compared to the same period in the previous fiscal year, we’d certainly avoid those two stocks, and the other two peers’ performances don’t seem to have been too much stronger than what we found at URS.
So in relative terms URS seems that it could be a good value. At a cheap trailing P/E, and with a modest growth record over the last year, we’d also say that it is attractive on an absolute basis. We would prefer to see more hedge funds getting excited about a small-cap stock but overall we would be interested in learning more about the company.
Disclosure: I own no shares of any stocks mentioned in this article.