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IES Holdings Inc (IESC): Laughing Water Capital Loves This Small-Cap Construction Stock

Laughing Water Capital is bullish on IES Holdings Inc (NASDAQ:IESC), a $386-million market cap company that provides industrial infrastructure services in the United States. In its Q3 investor letter (download a copy here), the hedge fund discussed its investment thesis on IES Holdings.

Here is what Laughing Water Capital said:

IES Holdings entered our portfolio as a smaller position. The company is a conglomerate with business in 4 verticals – Commercial & Industrial, Communications, Residential, and Infrastructure. While these businesses should benefit from both cyclical and secular tailwinds in the years to come and are thus interesting in their own right, what makes an investment in IESC more interesting is that it is almost 60% controlled by Jeffrey Gendell, an excellent capital allocator. Gendell is the founder of Tontine Capital, where he previously compounded capital at ~40% a year for a decade.

Further, the company has approximately $400M in NOLs, meaning that Gendell will be able to allocate IESC’s earnings under a tax shield, which should drive considerable shareholder value. Credit for this idea belongs to Chris Colvin of Breach Inlet Capital, who first brought it to our attention.

IES Holdings Inc (NASDAQ:IESC), through its subsidiaries, provides network infrastructure services for data centers, electrical installation services for housing and apartment complexes, cable television installations for residential and light commercial applications, electrical/mechanical design, construction/maintenance services to the commercial and industrial markets, and electro-mechanical solutions for industrial operations to domestic and international customers.

michaeljung/Shutterstock.com

michaeljung/Shutterstock.com

For the fiscal third quarter ended June 30, the company reported revenue of $208 million, up 16% compared to the same quarter of 2016. Its net income for the quarter dropped to $5.9 million, or $0.27 per share, compared to $10.8 million, or $0.50 per share, for the last year’s third quarter. IES Holdings President Robert Lewey said in a statement that third-quarter earnings were negatively impacted by continued underperformance at the company’s branches in Denver, Colorado and Roanoke, Virginia, within its Commercial and Industrial segment.

IES Holdings Inc (NASDAQ:IESC) is one of the many other small-cap stocks that is popular among investors due to its explosive growth. The electrical contracting and maintenance services provider appears to be in a better position to manage its short-term liabilities and has a good debt-to-equity ratio. The company’s shares are up more than 26% this year.

Besides Laughing Water Capital, there are some other hedge funds that see a value in IES Holdings. There were six funds in Insider Monkey’s database with bullish positions in IES Holdings.