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Tetra Tech (TTEK) Displays Bright Prospects, Risks Persist

Zacks Equity Research

On Dec 24, we issued an updated research report on Tetra Tech, Inc. TTEK.

In the past year, this Zacks Rank #3 (Hold) stock has yielded a return of 2.8% against industry’s decline of 7.7%.

Existing Scenario

Tetra Tech is bullish about its growth across all four client sectors, namely, U.S. federal, U.S. state and local, the U.S. commercial work and international. Based on growth rate forecast for both the U.S. federal and the U.S. state local markets, the company expects federal work to comprise almost a third of its business and grow at a rate of 5% in fiscal 2019. Work for U.S. state and local clients is also expected to grow 5% in the fiscal year. Notably, the company's U.S. state and local clients — in both the municipal water and smart water services domains — are expected to be its strongest growth drivers for the upcoming quarters.

Also, the company has had a solid run in recent times, owing to impressive top-line growth, restructuring efforts and accretive acquisitions. In a bid to maximize growth prospects, Tetra Tech is currently focusing on high-end consulting and engineering services that is helping it promote its high value and high margin business, thus differentiating it from peers in the marketplace.

Moreover, the company expects growth in its international revenues to be driven by infrastructure programs and design work. Excellent visibility with backlog along with robust pipeline of infrastructure projects in all the markets should lead the company to solid growth.

However, increase in costs have been a major cause of concern for Tetra Tech over the past few quarters. For instance, in the fiscal fourth quarter, the company’s cost of sales increased 2.5% year over year. Also, for fiscal 2018, the metric recorded an increase of 7.5% from the previous fiscal year. This apart, headwinds like fluctuations in mining and energy markets or unfavorable government policies might hurt the company’s near-term results.

Stocks to Consider

Some better-ranked stocks from the same space are Atkore International Group Inc. ATKR, Harsco Corporation HSC and Brady Corporation BRC. While Atkore International and Harsco 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.

Atkore International surpassed estimates in each of the trailing four quarters, the average positive earnings surprise being 27.58%.

Harsco outpaced estimates in each of the preceding four quarters, the average earnings surprise being 13.58%.

Brady exceeded estimates thrice in the preceding four quarters, the average positive earnings surprise being 7.04%.

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Atkore International Group Inc. (ATKR) : Free Stock Analysis Report
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