Underground Construction - October 2019 - 15

8%
3%
-2%
-7%
-12%
-17%
S&P 500
UCC index

-22%

Sep
t.19

g.19
Au

Jul
y-1
9

e-1
9
Jun

Ma
y-1
9

Ap
ril19

Ma
r.19

Feb
.-1
9

Jan
.-1
9

De
c.18

No

Oct

v.18

.-1
8

Sep
t.18

-27%

Figure 3: 1-Year UCC Index. Source: FMI Research, S&P Capital IQ; as of September 9, 2019
52%
S&P 500
UCC index

42%
32%
22%
12%
2%
-8%

19

9

Sep

y-1

t.-

9
y-1

Jul

Ma

19

9

r.-

Ma

.-1

18
v.-

Jan

No

8

18
t.-

y-1

Sep

8
y-1

Jul

Ma

18

8

r.-

.-1

Ma

17
v.-

Jan

No

7

17
t.-

y-1

Sep

7

Jul

y-1

Ma

Ma

r.-

17

7
.-1

16

Jan

v.-

No

t.-

16

-18%

Sep

particularly, new families. U.S. population
growth in 2018 was the lowest since 1937,
and a "new normal" of average housing
starts is likely to be between 1.1 and
1.2 million, versus the 1.5 million the
market is accustomed to. FMI research
projects that single family put-in-place
will slow growth in 2019, and that both
multifamily and residential improvements
will experience a decline, resulting in a
stagnant residential construction market.
Even with these pressures, a slowdown
is all that is expected in the current
market. Income and hours continue to
rise, U.S. home prices are up almost 5
percent over the year prior, and the supply
and demand appear to be close to neutral.
For those organizations with significant
residential exposure, we view this pause in
the market as a period for taking a breath
and making some important decisions.
That includes hard performance and
personnel decisions, refining a strategy
for long-term success and, most
importantly, maintaining a healthy
balance sheet by avoiding overextension
on new or larger projects.
The UCCI presented, below, shows
the performance of the sector's publicly
traded stocks year-to-date (Figure 2),
the past 12 months (Figure 3) and the
past three years (Figure 4). The year-todate performance experienced a sharp
drop, relative to the performance of the
S&P 500, due to the decline in oil prices
and ongoing concerns of material and
equipment cost increases related
to the Chinese trade relations. The
results are depressed stock prices
compared to other segments of the
market. Revenue is higher year-overyear for the UCCI companies; however,
profitability must continue to improve
for the segment to outperform.
The UCCI remains more volatile than
the S&P 500. Figures 3 and 4 illustrate
the declining performance of the UCCI,
while the S&P 500 was stable. Most of
the declines in the UCCI are correlated
with oil pricing.
As we look at valuation, the worth
of companies within the UCCI have
varied significantly based upon backlog,
operating performance and exposure to
select end markets. Valuation declined

Figure 4: 3-Year UCC Index. Source: FMI Research, S&P Capital IQ; as of June 19, 2019
FIGURE 5: UCC Index Companies' Operating Performance & Valuation Metrics
Enterprise
Value (EV)

LTM
Revenue

Book
Value

EV/
EBITDA

Price/
Book

MDU Resources Group, Inc.

7,996.7

4,885.4

657.9

421.0

1,969.6

12.2x

2.1x

Quanta Services, Inc.

6,827.6

11,744.0

855.6

597.5

1,578.3

8.0x

1.3x

MasTec, Inc.

6,379.2

7,352.1

771.8

541.5

189.9

8.3x

3.1x

Dycom Industries, Inc.

2,474.9

3,314.8

304.0

119.0

377.2

8.1x

1.7x

Granite Construction Incorporated

1,491.1

3,357.3

69.0

(60.7)

943.3

21.6x

1.1x

Primoris Services Corporation

1,543.7

3,238.1

237.0

149.5

330.0

6.5x

1.6x

Aecon Group Inc.

1,334.9

3,485.8

183.4

99.3

314.7

7.3x

1.4x

Aegion Corporation

950.5

1,269.3

92.5

55.8

59.3

10.3x

1.4x

MYR Group Inc.

596.7

1,762.8

86.1

43.8

250.6

6.9x

1.4x

Matrix Service Company

420.0

1,416.7

56.2

37.9

239.1

7.5x

1.4x

79.7

146.8

15.0

5.2

61.3

5.3x

0.9x

Low

5.3x

0.9x

Mean

9.3x

1.6x

Median

8.0x

1.4x

21.6x

3.1x

Company

The Goldﬁeld Corporation

High

LTM
EBITDA LTM EBIT

Source: S&P Capital IQ, data as of September 9, 2019; all data is TTM.

UConOnline.com | OCTOBER 2019

15
http://www.UConOnline.com
Underground Construction - October 2019

Table of Contents for the Digital Edition of Underground Construction - October 2019
