John Mirshekari: Inflections in Incentives

Wyatt Investment Research

John Mirshekari of Fidelity Investments, a mutual fund manager, highlights URS (URS) as his stock pick.

URS is:

  • One of the largest, most diverse engineering companies in the world.
  • It has a $53 stock price.
  • It’s a good business that’s undervalued due to poor capital allocation historically and a lack of trust in return of capital. Conditions are in place, however, to repurchase stock.
  • Stock has a chance to double in next two years.
  • Four-year free cash flow: $1.6 billion. Stock 9 times four-year trailing FCF.
  • Tangible returns on capital 17% last decade. Management hasn’t maximized value through capital allocation. Lowest valuation in the industry.
  • URS is analogous to AECOM (ACM) 18 months ago, when it was 6 times earnings. AECOM is URS’ closest competitor. AECOM was struggling until it decided to stop mergers and acquisitions and focus on more stock repurchases. As Mirshekari put it, they went from “glutton to capital.” The result? The stock is up 40% year-to-date.
  • URS is similarly undervalued because investors thing another acquisition is coming. However, the company is committed to capital allocation.
  • At 9 times earnings, URS is at a significant discount to industry average of 14 times earnings.
  • Target price: $98 by 2015, an increase of nearly 100% from current price.


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