Tutor Perini Corporation TPC, a diversified general contracting, construction management and design-build service provider, has surged 87.3%, outperforming the Zacks Building Products - Heavy Construction industry’s 25.3% growth, the Zacks Construction sector’s 8.9% increase and the S&P 500 Index’s 9.3% rise, in the past six months.

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TPC is benefiting from sold contract wins, especially for large mega construction projects given the limited market competition for such projects. Thanks to the increasing award flows, the company can reduce its total debt position and increase its margins, leveraging the increased top line.

Although the increased expense structure due to higher share-based compensation expenses along with a few unfavorable adjustments is concerning, the stated tailwinds are boding well for the company and position it well for outperformance in the near and long term.

TPC stock has also outperformed the other industry players in the past six months, including Granite Construction Incorporated GVA, MasTec, Inc. MTZ and EMCOR Group, Inc. EME. In the same time frame, shares of GVA, MTZ and EME have gained 41.1%, 30% and 19.8%, respectively.

What's Driving the TPC Stock?

Limited Competition Scenario: Tutor Perini engages in bidding activity for large or mega construction projects, and the market competition faced by the company for such projects is limited. It is because of a small pool of contractors with both the physical and financial resources to pre-qualify successfully bid bonds and execute these projects.

Such a market scenario is favorable for TPC and will continue to bode well in terms of the probabilities of winning new projects, and the encompassed margin potential. The company expects that the project pipeline for large projects is going to increase in the second half of 2024 and continue into 2025 and 2026, given the well-funded capital spending plans by state, local and federal customers.

Consistent Contract Wins: Tutor Perini’s efficient project execution, diversified delivery methods and services have aided it in securing new contracts and awards consistently. This is the company's primary growth driver, which adds to its backlog level, thus determining its long-term growth prospects in this everchanging economy.

Some of the significant recent award wins of the company include an approximately $1.66 billion contract from the Honolulu Authority for Rapid Transportation for the City Center Guideway and Stations Project in Honolulu, Hawaii; and a $1.3 billion Connecticut River replacement bridge project for Amtrak, which it received in a joint venture with the O&G Industries.

At the end of June 30, 2024, TPC’s backlog was $10.42 billion, which was up from $9.98 billion as of March 31, 2024, and from $10.16 billion on Dec. 31, 2023. Furthermore, the company’s top-line growth is being favored by the ongoing contract wins and growing backlog. In the first half of 2024, revenue increased 21% to $2.18 billion year over year.

The revenue growth trend for the past year can be observed from the chart given below.

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Efforts to Reduce Total Debt: The ongoing solid contract win trajectory and favorable market demand trends have enabled TPC to result in top-line growth over the past few quarters. With strong cash generation, the company has made significant strides in deleveraging its balance sheet.

Considering total debt, Tutor Perini successfully managed to reduce it by 25% to $676 million as of June 30, 2024, from $900 million on Dec. 31, 2023. The company plans to continue moving on this path of further reducing its total debt by using any excess cash generated in 2024 and 2025.

The declining debt trend is shown in the chart below.

Image Source: Zacks Investment Research

TPC Trading Above 50 & 200-Day SMA

Technical indicators suggest a continued strong performance for Tutor Perini. From the graphical representation given below, it can be observed that the TPC stock is riding above both the 50-day simple moving average (SMA) and 200-day SMA, signaling a bullish trend. The technical strength underscores positive market sentiment and confidence in TPC’s financial health and prospects.

50 & 200-day Moving Average

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TPC Trades at a Discount

Tutor Perini is currently trading at a discount to the industry peers on a forward 12-month price-to-earnings (P/E) ratio basis. TPC’s forward 12-month P/E ratio stands at 16.71, lower than the industry’s ratio of 19.87. This indicates that despite the recent stock price increase in the past six months, it remains an attractive option for investors looking for a discounted entry point.

Estimate Revision of TPC Stock

The Zacks Consensus Estimate for Tutor Perini’s 2024 earnings has trended downward in the past 60 days. Although the estimated figure moved south, it indicates growth of 128.8% from a year ago. On the other hand, the consensus estimate for third-quarter earnings has moved up over said time frame, indicating 146.5% year-over-year growth.

EPS Trend

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Include TPC in Your Portfolio – Yay or Nay?

The public capital spending trends and the limited competition for very large projects are favoring Tutor Perini’s growth prospects. The company also expects that this favorable trend is going to continue for the rest of 2024 and move into the next couple of years as well. Furthermore, thanks to these tailwinds, TPC is also consistently managing to reduce its total debt position. These positive aspects must be taken into consideration while deciding on any action taken in favor of the TPC stock.

Currently, TPC holds a VGM Score of A, backed by Growth and Value Scores of A.

As discussed above, the earnings estimate trend for 2024 has moved south, most likely due to the negative impact of higher share-based compensation expense due to a substantial increase in TPC’s stock price during the second quarter of 2024 and an unfavorable adjustment due to a project settlement. Nonetheless, the year-over-year earnings estimate growth rate indicates a sound improving trajectory for Tutor Perini in 2024.

Based on the overall discussion and the trends of technical indicators, investors can consider adding this Zacks Rank #2 (Buy) stock to their portfolio for now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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