Tuesday, November 08, 2005

Mastec details

MTZ provided more details on the results for the quarter. The top line was slightly weaker than guidance due to the natural disasters during the quarter top line guidance for Q4 is little weaker also but EPS is higher due to continued margin expansion. Gross margin was higher than expectations even with negative impact from the hurricanes in Gulf Coast and Florida and lower margin from DOT work, these events should be a positive to revenues and margins in next few quarters. During the quarter the FTTx work slowed down considerably for both BLS and VZ, VZ has decided to "stall" work until budgets are released for next year. VZ has stated that the homes passed will grow by 50% next year, leaving plenty of upside to revenue opportunity for MTZ. The affects of VZ stalling spending is already being felt by ADCT, and TLAB to some extent. CMCSA business was missing during the quarter also as that project has winded down and MTZ management has walked away from low-margin government business and indications are it will likely to do so going forward. DTV continued to be largest customer.

MTZ improved margins faster than the top line growth and this trend should continue for forseeable future, which makes this stock a nice play. One overhang on MTZ stock is the looming equity offering. How will VZ spend more on FTTx next year to achieve 50% more penetration, and which equipment categories will be negatively affected by that? I have my opinons on this and would like your feedback on this.


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