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Tetra Tech Reiterates at Neutral

Zacks Equity Research

We maintain a Neutral recommendation on Tetra Tech Inc. (TTEK).

The company reported an increase in its top- and bottom-line figures during the second quarter of fiscal 2012. New order uptake increased its backlog in comparison with the prior year. The company also performed well in its international market, benefitting from the rising demand for water related services. Further, good returns from the US as well as international markets prompted the company to increase its revenue guidance for fiscal 2012. The company’s results in the quarter exceeded its targeted long-term growth rate of 15% of revenue and income.

Tetra Tech’s revenue is derived from a diverse client base, including the Federal government, State and local government, Commercial and International. No single commercial client accounted for more than 10% of Tetra Tech’s revenue in fiscal 2011. The company continues to see strong demand for its water-related services from a broad base of industrial clients in the U.S. and abroad. Work from the U.S. government remained stable. Further, the company continuously evaluates the marketplace for strategic acquisition opportunities.

However, impact of a weak economic condition remains a matter of concern.  A major portion of Tetra Tech’s revenue is derived from the U.S. federal government agencies and any delay in budgets would have a material adverse impact on revenue. During second-quarter 2012, the U.S. federal government business of Tetra Tech declined 11.2%. Due to the U.S. federal budget uncertainties, the company continued to experience delays on new awards for certain large construction management projects in the U.S. and abroad. Major competitors of Tetra Tech are AECOM Technology Corporation (ACM), Arcadis NV (ARCAY) and Shaw Group Inc. (SHAW).

Tetra Tech Inc. is a leading provider of consulting, engineering, program management, construction and technical services focusing on resource management and infrastructure. It serves clients by providing cost-effective and innovative solutions to fundamental needs like water, environmental and alternative energy services.

Tetra Tech currently has a Zacks #2 Rank (Buy recommendation) over the next one-to-three months.

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