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small-cap

Should You Exit From This Small-Cap Industrials Stock – TPC

Apr 06, 2022 | Team Kalkine
Should You Exit From This Small-Cap Industrials Stock – TPC

Tutor Perini Corporation

Tutor Perini Corporation (NYSE: TPC) is a global construction company that provides a wide range of general contracting, construction, management, and design-build services to private and public sector clients. In 2021, it had worked on over 1,600 construction projects.

Why should Investors make an Exit?

  • Significant Fall in Topline and Bottomline: Revenue fell 12.73% to USD 4.64 billion in FY21 (ended December 31, 2021) from USD 5.32 billion the previous year, owing to lower project execution activities in the Building segment. TPC's net income also fell to USD 134.15 million in FY21 from USD 152.34 million in FY20.
  • Leveraged Balance Sheet: The company's debt/equity ratio was 0.60x as of December 31, 2021, compared to the industry median of 0.36x. Furthermore, its long-term debt-to-total-capital ratio was 36.3% during the same time, compared to 21.1% for the industry norm. As a result, the company's balance-sheet risk has grown.
  • Long Cash Conversion Cycle: The company's cash conversion cycle deteriorated significantly from 162.2 days in FY20 to 206.1 days in FY21. Its cash conversion days remain higher than the industry average of 54.9 days, showing that it takes longer to convert inventories to cash.
  • Dependence on Government Projects: TPC's civil construction projects are funded by the federal, state, and local governments. It received 66% of its income from federal, state, and local governments for civil construction customers in FY21. As a result, any reduction or delay in government funding for such projects could have a further detrimental impact on the company's bottom line.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

  (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

TPC's share price has been on a decreasing trend throughout the year, fallen 48.51% in the past twelve months and is currently trading close to the lower band of the 52-week range of USD 9.19 to USD 19.82. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 9.00.

Considering the fall in topline and bottom-line metrics, leveraged balance sheet, long cash conversion cycle, associated risks, and current valuation, we recommend a "Sell" rating on the stock at the closing price of USD 10.00, down 4.94% as of April 05, 2022.

Three-Year Technical Price Chart (as of April 05, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.