Matrix Service Co (MTRX) recently saw a big move up on strong volume leading many to assume that institutions are moving in on this name. Estimates have been rising and this year and it's clear that some investors have taken notice. Today, MTRX is a Zacks Rank #1 (Strong Buy), it is the Bull of the Day.
Some investors want energy exposure. Some want to benefit from the increases in CapEx that all the energy companies have been pointing to lately. MTRX is more of the later, as they build electrical infrastructure, storage solution for the oil industry, as well as an assortment of machinery solutions for the industrial sector.
Most Recent Quarter
Matrix Service reported results for the first quarter of this year back in May and it was a strong quarter indeed. MTRX posted EPS of $0.42, eight cents ahead of the Zacks Consensus Estimate of $0.34 for a positive earnings surprise of 23%. The company also posted revenue of $382M, $60M ahead of estimates for a 18% positive revenue surprise.
Prior To That Beat
Before this recent strong beat, the company posted another strong quarter. This was a beat of $0.12 or 46% ahead of the Zacks Consensus Estimate. This quarter also saw revenue come in well ahead of expectations, as MTRX posted a 29% positive revenue surprise.
So basically two super strong quarters in a row, but just before that the company did miss estimates. The September 2013 quarter came in one penny light and as a result the stock dropped 4.6% in the session following the release.
So in a risk / reward scenario, a one cent miss drops the stock 4.6%. The 12 cent beat pushed the stock higher by 27% and the 8 cent beat lifted the stock another 14.4%. With revenue coming in well over expectations, even a small increase in margins is likely to produce even bigger moves to the upside.
MTRX Sees Estimates Moving Higher
The Zacks Consensus Estimate for 2014 for MTRX has been rising. In January of this year, analysts were only calling for $1.13, but by March the number had risen to $1.32. 3 months later in June and we are looking at $1.42.
The 2015 Zacks Consensus Estimate has also seen an increase of late. Analysts started the number in September 2013 at $1.37, but that moved higher to $1.56 in March and is currently at $1.72.
The recent move higher in the stock has pushed the valuation higher, but the big beats over the last two quarters suggest that we might the fundamental catch up rather soon. A forward PE of 25x is somewhat rich compared to a 17x industry average, and a price to book multiple of 3.5x is going to take the company off many value screens. The thing is, this stock is trading at less than 1x sales. Yep, 0.8x sales means its trading at roughly half the multiple the rest of the industry shares at 1.5x.
When I look at the potential for future growth in a stock, I look at the top line. MTRX is expected to see 43% revenue growth in 2014, up from 21% in 2013. The industry grew at 1% in 2013 and 10% is expected for this year. Next year, MTRX is expected see 16% revenue growth while the industry is expected to see 9% growth.
So we have a stock that is trading a little higher on earnings multiples and a conservative measure of price to book. Meanwhile, revenue growth is blowing away its peers and that measure of valuation simply gets no love from investors. Maybe that will change if margins increase... as MTRX only has a 3% net margin compared to a 12% industry average.
The price and consensus chart is a very useful tool for investors. Developed here at Zacks, we show how earnings estimates have moved in relation to the stock price. The price and consensus chart shows that the stock really picked up as the earnings estimates moved higher at the start of the year. Since then, estimates continue to move higher and higher. This is just what investors want to see in a stock.
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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.
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