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North American Construction Pulls '20 View Amid Coronavirus Woes

Zacks Equity Research
·2 min read

Uncertainty regarding the coronavirus pandemic has prompted North American Construction Group Ltd. or NACG NOA to withdraw its guidance for 2020. The company noted that its clients are currently experiencing negative and wide-ranging impact of shutdowns. These headwinds are likely to put pressure on the company’s full-year results.

NACG has already started flexing its highly variable cost structure and capital spending plan to mitigate risks. Also, the company reduced its debt level via the call of a convertible debenture.

Notably, its first-quarter performance was robust. On a further encouraging note, the company anticipates meeting full-year 2020 projections.

During fourth-quarter 2019 conference call, it projected more than 15% improvement in both adjusted EBITDA and earnings for 2020. Free cash flow is estimated to be $85 million.

In the year-to-date period, the stock has dipped 58.2% compared with the industry’s decline of 33.9%. NACG — which shares space with MasTec, Inc. MTZ, Dycom Industries Inc. DY and Great Lakes Dredge & Dock Corporation GLDD in the Zacks Building Products - Heavy Construction industry —  currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The downside is reflective of volatility in the oil sands market due to coronavirus and OPEC-led oil price war. Recently, the OPEC announced a production cut of nearly 10 million barrels a day to end an ongoing price war.

Additionally, the company is witnessing margin pressure. In 2019, its gross and adjusted EBITDA margin contracted 340 and 60 basis points, respectively, due to the early and abrupt spring breakup, consistent rainfalls during July and August, along with the reduction of tailings pond support activities at the Millennium Mine. Additionally, increased equipment maintenance activities on its recently acquired equipment fleet added to the woes.

The Zacks Consensus Estimate for the company’s earnings for the first quarter and 2020 indicates a decline of 2.6% and 20.4%, respectively.

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