MasTec Earnings: Challenges With IEA Acquisition Cause Another Guidance Cut

We lower our fair value estimate for no-moat MasTec MTZ to $70 per share from $86 after the company’s third-quarter earnings in which it lowered 2023 guidance. The main driver of our lower valuation is lower revenue growth and margin expansion versus our prior estimates. MasTec shares are trading down 17% pre-market following the guidance cut. We view shares as undervalued given low expectations following a challenging 2023 for the company.

MasTec reported disappointing third-quarter results and reduced its full-year revenue and adjusted EBITDA guidance by 7% and 20%, respectively. While the company is seeing varying degrees of challenges across select end markets, the bulk of the guidance reduction came from its Clean Energy segment. In particular, the company’s 2022 acquisition of IEA has proven particularly challenging relative to original expectations. IEA reported revenue of $2.4 billion in 2022, but this is expected to shrink to $1.7 billion in 2023 with the company citing financing delays shifting the timeline for many solar projects. We await peer Quanta Services’ results on Nov. 2 to determine the extent of the financing bottleneck across the industry or if it is more specific to IEA’s customer base.

We reduce our 2024 revenue expectations by 6% and lower adjusted EBITDA margins to 7.7% (from 8.9% previously) following the company’s 2024 initial outlook. We also trim our midcycle adjusted EBITDA margin to 8.6% from 9.0% as we continue to calibrate our midcycle margin expectations for the company’s evolving business mix.

MasTec shares are down nearly 60% over the past few months as investor expectations have been reset, most notably for its Clean Energy segment following hiccups with its IEA acquisition. However, we view the company’s revised outlook and initial expectations as reasonable and see value in shares following the selloff.