On May 20, 2013, we retained URS Corporation (URS) at Neutral, following its first-quarter 2013 results. Strong performance in the oil & gas business has been fully offset by weak performance in the Federal and Construction business.
Why the Retention?
On May 9, URS Corp. reported mixed results for the first quarter of 2013, with its earnings down 10.3% year over year while revenues grew 18.7% year on year. Profits for the company are uneven as the company primarily generates revenues from large-scale projects which vary from quarter to quarter. However, revenue growth in the quarter was driven by continued strength of the energy and oil & gas sectors.
The company’s earnings have managed to beat the Zacks Consensus Estimate in only 1 out of the last 4 quarters, with a negative surprise of 2.57%. The company has missed the Zacks Consensus Estimate consecutively in the last two quarters of 2012. Following the earnings release the Zacks Consensus Estimate for the second quarter of 2013, full year 2013 and 2014 have hit a plateau at 98 cents, $4.34 and $4.73 respectively.
URS is one of the world’s leading companies providing engineering, construction and technical services. The company’s oil & gas business has been demonstrating strong performance since the acquisition of Flint Energy in 2012. During the fourth quarter of 2012, the oil & gas segment alone contributed 29% of the total revenues. In the most recent quarter (1Q13), revenues from this segment grew a robust 250%.
However, URS is plagued by the inconsistency in the Federal Services segment which contributed about 40% of the total consolidated revenue in the year 2012. URS is adversely impacted by the continuing delay in procurement decisions and reduction in anticipated spending against previously awarded contracts. In addition, the company’s Energy and Construction divisions are also witnessing weak growth due to a large gap between the last finished projects and the new ones that are being completed.
Other Stocks to Consider
URS has a Zacks Rank #4 (Sell). While we are bearish on URS in the near term, engineering company stocks such as Quanta Services Inc. (PWR), Harris & Harris Group Inc. (TINY) and Willdan Group Inc. (WLDN) warrant a look. All three stock carry a Zacks Rank #2 (Buy).
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