Toward the end of the October 6 lightning round of Mad Money, a caller asked about MasTec, Inc. (NYSE:MTZ). Jim Cramer acknowledged its operating performance but remained reluctant to buy, as he said:
This thing has been crushed. I mean, it’s been crushed. And you know what? It’s doing pretty well. It’s not even that expensive… It helps wind farms and solar farms. And boy, those are farms that nobody wants. And what can I say? I’m not going to get in front of that kind of selling.
MasTec, Inc. (NYSE) ranks #8 on our list of 10 Best Construction Stocks for Data Center Infrastructure. See which seven stocks rank higher?
Data Centers Broaden the Construction Opportunity
MasTec, Inc. has exposure beyond wind and solar construction. Its July acquisition of The Superior Group added electrical contracting capabilities for data centers and other critical facilities, extending its services from supporting infrastructure outside a facility to electrical work inside it. Cramer’s reluctance contrasts with an earlier analyst response to weakness in the shares. MasTec’s entry in a roundup of long-term data-center stocks highlighted Baird’s case for treating a pullback as an opportunity.
Second-quarter revenue increased 23% to approximately $4.4 billion, while adjusted earnings per share rose 49% to $2.22. Its estimated 18-month backlog reached approximately $21.4 billion, including $7.8 billion in Clean Energy and Infrastructure and $6.35 billion in Power Delivery. Management raised full-year adjusted earnings guidance to $9.30 per share. MasTec’s expansion also places it among the fastest-growing grid construction companies, although two contractors ranked ahead of it on trailing revenue growth. That broader comparison provides context for how quickly its business is growing.
Its valuation also gives context to Cramer’s acknowledgment that the stock is not particularly expensive. As data shows, MasTec at approximately 20.2x forward earnings, compared with 22.5x for EMCOR and 38.1x for Quanta Services. These contractors have different project mixes, but MasTec traded below both on the same valuation measure.
Project Growth Has Yet to Translate Fully Into Cash
MasTec, Inc.’s first-half free cash flow was negative $47.6 million, compared with negative $0.4 million a year earlier. Net debt increased to approximately $2.42 billion at June 30 from $1.93 billion at year-end. These figures preceded the July closing of the Superior acquisition. Backlog also requires careful interpretation. MasTec’s estimate includes anticipated work under service agreements, change orders and renewal options. It is not entirely composed of firm, unconditional orders. The cash-flow weakness sharpens the question behind an earlier Quanta–MasTec comparison: how much extra should investors pay for stronger cash conversion? That analysis weighed Quanta’s advantage against the room for improvement in MasTec’s collections.
The company identifies permitting delays, changes in renewable-energy support, customer financing costs and inaccurate project-cost estimates as risks. Those factors can affect when projects begin and how much profit they ultimately produce, even when demand for infrastructure remains strong.
Ownership Changes Little as Short Interest Remains Notable
According to Insider Monkey, there were 82 hedge funds that held MasTec, Inc. in Q2, compared with 83 in Q1. Short interest stood at 8.54% of the float, indicating a meaningful level of bearish positioning.
Cramer recognized that MasTec was performing well but did not want to buy into the selling. Its growing backlog and lower peer valuation give investors reasons to keep watching. Better cash conversion would strengthen the case, especially as the company brings its new data-center construction business into the group.
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