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Macquarie (MIC) Displays Bright Prospects, Risks Persist

Zacks Equity Research

On Jul 1, we issued an updated research report on Macquarie Infrastructure Company MIC.

In the past month, this Zacks Rank #3 (Hold) stock has gained 2% compared with the industry’s rally of 6.5%.


Existing Scenario

Macquarie is well poised to gain from strong flight activity and increased market share across the airports wherein it operates. For instance, new project wins involving construction of additional capacity and related infrastructure work are likely to drive revenues of company’s IMTT segment. Also, the MIC Hawaii segment's revenues have benefited from the implementation of new gas rates (July 2018) and investments in renewable energy infrastructure projects.

The company’s planned growth investments will strengthen performance of segments. For 2019, growth capital expenditure is likely to be $275-$300 million, with a major chunk to be used for the IMTT segment. In addition, the company's healthy cash flow allows management to return higher values to shareholders. In the first quarter of 2019, it distributed dividends totaling $86 million.

However, Macquarie’s long-term debt increased roughly 2.3% (CAGR) in the five years (2014-2018). The company’s long-term debt balance at the end of first-quarter 2019 remained high at $2,653 million. We believe that high-debt levels, if unchecked, can prove detrimental to margins and profitability.

In addition, analysts have become increasingly bearish on Macquarie over the past couple of months. Consequently, the Zacks Consensus Estimate for 2019 earnings has trended down from $4.81 to $4.80.

Stocks to Consider

Some better-ranked stocks from the same space are Crane Co. CR, Carlisle Companies Inc. CSL and Federal Signal Corp. FSS. All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Crane delivered average earnings surprise of 6.74% in the trailing four reported quarters.

Carlisle pulled off average positive earnings surprise of 19.07% in the previous four reported quarters.

Federal Signal delivered average earnings surprise of 21.75% in the trailing four reported quarters.

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