Tetra Tech, Inc. TTEK currently seems to be a smart choice for investors seeking exposure in the pollution control space. Solid fundamentals and positive revision in earnings estimates are reflective of healthy growth potential of the stock.
The California-based company currently carries a Zacks Rank #2 (Buy). It belongs to the Zacks Pollution Control industry, which is in turn a sub-industry of Zacks Industrial Products sector. We believe that stringent government regulations, pollution-related risks and growing demand in emerging nations are aiding pollution control equipment and services.
Below we discussed why investing in Tetra Tech will be a smart choice.
Share Price Performance, Impressive Earnings Outlook: Market sentiments seem to be working in favor of the company over time. In the past three months, Tetra Tech’s share price has gained 19.9% compared with the industry’s growth of 5%.
It is worth mentioning here that the company’s earnings surpassed estimates by 11.25% and grew 25.4% from the year-ago quarter in the third quarter of fiscal 2019 (ended Jun 30, 2019). The bottom-line results benefited from strengthening businesses related to municipal water infrastructure, disaster response, renewable energy and other businesses.
For 2019, the company raised its earnings per share projection from the previously stated $2.95-$3.05 to $3.10-$3.15. The bottom-line results will likely gain from healthy revenues, acquired assets and lower taxes of 23% (versus 24% mentioned earlier).
In the past 30 days, earnings estimates for fiscal 2019 (ending September 2019) and fiscal 2020 (ending September 2020) have been revised upward, reflecting positive sentiments about the company’s growth prospects. Currently, the Zacks Consensus Estimate for earnings for Tetra Tech is pegged at $3.06 for fiscal 2019 and $3.42 for fiscal 2020, suggesting growth of 1% and 2.1% from the respective 30-day-ago figures.
Tetra Tech, Inc. Price and Consensus
Tetra Tech, Inc. price-consensus-chart | Tetra Tech, Inc. Quote
Strengthening Top-Line Growth Prospects: The company has a diverse customer base, with international and U.S. commercial clients as well as U.S. federal and U.S. state, and local government agencies.
Tetra Tech’s growth in broad-based infrastructure business as well as disaster response and recovery planning will likely benefit the U.S. state and local business in the rest of fiscal 2019. Also, it predicts modest revenue growth for the U.S. commercial business on environmental programs, high-performance buildings, industrial water treatment and renewable energy. International revenues are anticipated to increase while modest rise is expected from U.S. federal customers.
For fiscal 2019, the company anticipates net revenues to grow from the previously stated $2.3-$2.4 billion to $2.37-$2.41 billion.
Debt Profile: Tetra Tech’s long-term debts were $324.1 million at the end of the third quarter of fiscal 2019, reflecting a sequential decline of 40.1%. The company’s debt profile is better than the industry. Its long-term debt/capital of 24.2% is lower than the industry’s 39.4%.
Shareholder-Friendly Policies, Buyouts: The company remains committed to rewarding shareholders handsomely through dividend payments and share buybacks. During the first nine months of fiscal 2019 (ended Jun 30, 2019), it bought back shares worth $75 million and distributed dividends worth $21.5 million.
It is worth mentioning here that the company hiked its quarterly dividend payout by 25% in April 2019. Also, it had $150 million authorization left under its share buyback program at the end of the fiscal third quarter.
Beside using its capital for rewarding shareholders, Tetra Tech believes in making acquisitions to fortify its product portfolio and enhance growth opportunities. In July 2019, the company acquired WYG plc, a provider of engineering and consulting services. This buyout will likely help in boosting Tetra Tech’s presence globally, especially in the U.K. and Europe. Also, WYG will expand business in environment, water and infrastructure markets. In April, Tetra Tech acquired eGlobalTech. This particular buyout has been strengthening Tetra Tech’s business from commercial and government customers.
Other Key Picks
Some other top-ranked stocks in the sector are Graham Corporation GHM, DXP Enterprises, Inc. DXPE and Dover Corporation DOV. All these stocks currently carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past 60 days, earnings estimates for these stocks improved for the current year. Further, earnings surprise for the last reported quarter was 100% for Graham, 4.29% for DXP Enterprises and 0.65% for Dover.
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