Free Annual Reports
Sterling Construction Building Profits
In a day where the S&P 500 and DJIA fell by over 2%, small cap infrastructure company Sterling Construction (Nasdaq:STRL) managed to surge by over 12% thanks to a strong quarter and solid 2010. Obviously, one trading day or a good quarter isn't sufficient to make an investment case. But in the case of Sterling, the 2010 fourth quarter may be a precursor what is ahead over the long-term for a company like Sterling.
TUTORIALS: 20 Investments To Know
Building Value
For the three months ended December 31, 2010, Sterling reported revenues of $138 million, a 93% increase from the year ago quarter. Net income of $9.3 million was significantly above the $800,000 earned by the company in the 2009 comparable period. For the year, overall results were still very respectable. Total revenues of $460 million were 18% higher than the 2009 figure. Net income of $19 million in the quarter was down 20% from the 2009 profit figure. Income in 2010 was affected by a $9.4 million increase in G&A due in part to the consolidation of a Utah-based acquisition. (For more, see Everything Investors Need To Know About Earnings.)
To be sure, Sterling's strong fourth-quarter comparables are due to the inclusion of the company's Utah operations which were not part of the company back in 2009. Nevertheless, fourth-quarter EPS was 54 cents, beating analysts estimates by 40 cents. What analysts and the market seemed to like, however, was the addition of $222 million in new award contracts during the fourth quarter. Those bookings propelled backlog to $660 million with $473 million of that coming in 2010 alone.
Bigger Is Not Always Better
Sterling has a sharp focus and a disciplined management team that won't bid on contracts merely to boost the top line at the expense of margins. The result is a profitable, efficient company. Larger competitors such as Granite Construction (NYSE:GVA) are not so fortunate at the current moment. With a market cap of $237 million and a P/E ratio of 22, that's still more attractive than Shaw Group (NYSE:SHAW), another well-run business, which trades for nearly 30 times earnings. Even Fluor (NYSE:FLR) is trading for 34 times earnings. Not to mention that Sterling's backlog of $660 is nearly three times the company's market cap. (For more, see Getting On The Right Side Of The P/E Ratio Trend.)
Sterling ended the year with a rock solid balance sheet as well. The company has nearly $90 million in cash and short-term investments against long-term debt of $336,000. A year ago, Sterling was sitting on over $40 million in debt. Book value of $250 million is just below the current market value.
Patience Pays
Sterling is a small-cap infrastructure company with a bright future. Over the long term, demand for its services should remain steady. And because Sterling's size allows it to participate in many more smaller size projects, the company should have plenty of opportunities to bid on new work over the next few years. Investors with a patient frame of mind may like the opportunity going forward. (For more, see Understanding Book Value.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
TUTORIALS: 20 Investments To Know
Building Value
For the three months ended December 31, 2010, Sterling reported revenues of $138 million, a 93% increase from the year ago quarter. Net income of $9.3 million was significantly above the $800,000 earned by the company in the 2009 comparable period. For the year, overall results were still very respectable. Total revenues of $460 million were 18% higher than the 2009 figure. Net income of $19 million in the quarter was down 20% from the 2009 profit figure. Income in 2010 was affected by a $9.4 million increase in G&A due in part to the consolidation of a Utah-based acquisition. (For more, see Everything Investors Need To Know About Earnings.)
To be sure, Sterling's strong fourth-quarter comparables are due to the inclusion of the company's Utah operations which were not part of the company back in 2009. Nevertheless, fourth-quarter EPS was 54 cents, beating analysts estimates by 40 cents. What analysts and the market seemed to like, however, was the addition of $222 million in new award contracts during the fourth quarter. Those bookings propelled backlog to $660 million with $473 million of that coming in 2010 alone.
Sterling has a sharp focus and a disciplined management team that won't bid on contracts merely to boost the top line at the expense of margins. The result is a profitable, efficient company. Larger competitors such as Granite Construction (NYSE:GVA) are not so fortunate at the current moment. With a market cap of $237 million and a P/E ratio of 22, that's still more attractive than Shaw Group (NYSE:SHAW), another well-run business, which trades for nearly 30 times earnings. Even Fluor (NYSE:FLR) is trading for 34 times earnings. Not to mention that Sterling's backlog of $660 is nearly three times the company's market cap. (For more, see Getting On The Right Side Of The P/E Ratio Trend.)
Sterling ended the year with a rock solid balance sheet as well. The company has nearly $90 million in cash and short-term investments against long-term debt of $336,000. A year ago, Sterling was sitting on over $40 million in debt. Book value of $250 million is just below the current market value.
Patience Pays
Sterling is a small-cap infrastructure company with a bright future. Over the long term, demand for its services should remain steady. And because Sterling's size allows it to participate in many more smaller size projects, the company should have plenty of opportunities to bid on new work over the next few years. Investors with a patient frame of mind may like the opportunity going forward. (For more, see Understanding Book Value.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
Free Annual Reports
