Macquarie Infrastructure Company (NYSE:MIC) owns and operates a small handful of infrastructure assets in the U.S. This asset base is costly to run and maintain, but consists of relatively basic services whose cash flows are predictable. This, combined with an appealing valuation and potential to reward investors with an increased dividend make the stock worth a close look.
TUTORIAL: The Industry Handbook: The Oil Services Industry

Second Quarter Recap
Total reported revenue jumped nearly 21% to $247.2 million. Macquarie Infrastructure operates three but disparate divisions. The first is a 50% equity interest in New Jersey-based International-Matex Tank Terminals, or IMTT, that operates a bulk liquid storage terminal business that stores petroleum products and an array of chemicals. It saw sales advance almost 12%. Macquarie's gas company is the only regulated utility in the Hawaiian Islands and saw sales jump 28%. It provides gas manufacturing as well as pipeline and unregulated gas distribution.

The third segment owns a collection of energy assets, including one in Chicago that provides air conditioning for high-rise buildings and heating and cooling services to three clients in Las Vegas. Macquarie has a 50.01% interest in this business and it saw sales fall nearly 7%. Finally, it owns Atlantic Aviation, which provides fuel and terminal services to 63 airports and a heliport in the U.S. This business reported nearly 24% sales growth during the quarter as it continues to recover from the credit crisis. (For more on the credit crisis, see Who Is To Blame For The Subprime Crisis?)

A 27.7% jump in operating expenses to $235.1 million and hefty interest expense of $19.9 million sent reported net income into negative territory at $2.5 million, or a loss of 5 cents per diluted share. However, operating cash flow fell only slightly but remained firmly positive at $41.3 million. Asset disposals more than offset quarterly capital expenditure and resulted in free cash flow of $42.6 million, or 93 cents per diluted share.

Outlook
Analysts currently project full-year revenue growth in excess of 15% and total revenue of $970 million. The current consensus profit expectation is $3 per share. Macquarie also said it expects to generate $3 in free cash flow per share for all of 2010.

The Bottom Line
After suspending its dividend in February 2009 "to accelerate debt reduction" and deal with a down economy, Macquarie returned to paying a dividend during the first quarter. The quarterly dividend amounted to 20 cents per share and equates to a current annual dividend yield of 3.5%.

There is the potential for a significant dividend boost as Macquarie management is working with its partner in the IMTT investment to distribute excess capital that the business is generating. It believes it will be able to eventually see through an increased distribution, which could potentially boost the dividend yield closer to 6%.

Macquarie continues to be burdened by a heavy debt load, but this is common in the industry given infrastructure assets are expensive to build and maintain. Brookfield Asset Management (NYSE:BAM) also competes in the industry while real estate investment trusts (REITs) such as General Growth Properties (NYSE:GGP), the Howard Hughes Corporation (NYSE:HHC) and Simon Property Group (NYSE:SPG) must also invest in and run costly real estate assets.

Despite the high debt, Macquarie's case, its businesses beyond aerospace are relatively recession-resistant and generate stable cash flows. This, combined with increased dividend potential and a free cash flow multiple below 7, suggest the stock has considerable potential upside going forward. (For more on free cash flow, see Free Cash Flow: Free, But Not Always Easy.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  2. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  3. Investing News

    The UAE: An Emerging Economy for Investors

    The learning from UAE on how it succeeded with timely diversification when the BRICS nations and the neighboring oil-rich economies faced challenges.
  4. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  5. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  6. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  7. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  8. Stock Analysis

    The Top 5 Platinum Penny Stocks for 2016 (PLG, XPL)

    Examine five penny stocks in the platinum mining business that investors may wish to consider adding to their investment portfolios for 2016.
  9. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  10. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center