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Tetra Tech (TTEK) Clinches $500M Five-Year Deal From USAID

Zacks Equity Research

Tetra Tech, Inc. TTEK recently announced that it has secured a $500-million contract from the U.S. Agency for International Development (“USAID”). Per the five-year, multiple-award deal, the premier consulting and engineering services firm will support USAID’s mission of addressing the increasing demand for utilization of modern energy services by raising awareness about renewable energy technologies.

Notably, the company’s data scientists will be responsible for performing advanced analytics for assessment of energy markets, enhancing regional cooperation and boosting utility performance. Also, Tetra Tech will work on catalyzing investment from private sector with the help of a regulatory framework, apart from examining social and environmental implications of the planned energy services. Moreover, the deal will involve the company to help local and national governments in boosting their capacity for energy sector governance and helping them prepare for disasters.

Our Take

Tetra Tech has clinched multiple government contracts in the past few years, which has significantly supplemented its top line. At the end of third quarter of fiscal 2019 (ended Jun 30, 2019), total backlog from ongoing operations – which is the best indicator of future revenue streams – grew 16.4% year over year to a record level of $2,834 million.

For the rest of fiscal 2019 (ending September 2019), the company believes that the U.S. state and local business will benefit from growth in disaster response and recovery planning as well as the broad-based infrastructure business, in turn, boosting revenues. Modest revenue growth is predicted for the U.S. commercial business on environmental programs, high-performance buildings, industrial water treatment and renewable energy. For fiscal 2019, the company anticipates net revenues of $2.37-$2.41 billion, higher than the previously estimated $2.3-$2.4 billion.

However, escalating costs have been a major cause of concern for Tetra Tech over the past few quarters. For instance, the company’s subcontractor costs and other cost of revenues (combined) rose 1.2% in the first nine months of fiscal 2019 from the year-ago comparable period. We believe that unwarranted rise in costs and expenses might be detrimental to Tetra Tech’s financials in the upcoming quarters.

Year to date, the company's shares have recorded an impressive rally of 61.3%, outperforming the industry’s growth of 29.8%.

Zacks Rank & Stocks to Consider

Tetra Tech currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the Zacks Industrial Products sector are Cimpress N.V CMPR, AZZ Inc. AZZ and Brady Corporation BRC. While Cimpress and AZZ sport a Zacks Rank #1 (Strong Buy), Brady carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cimpress’ earnings surprise in the last reported quarter was 137.04%.

AZZ delivered positive earnings surprise of 14.08% in the last reported quarter.

Brady pulled off positive earnings surprise of 11.48% in the last reported quarter.

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