STX vs. NTAP: Which Stock Should Value Investors Buy Now?
A month has gone by since the last earnings report for Tetra Tech, Inc. TTEK. Shares have added about 14.8% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is TTEK due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Tetra Tech Beats on Q2 Earnings & Revenues, Ups View
Tetra Tech reported second-quarter fiscal 2018 adjusted earnings of 54 cents per share from ongoing operations, which surpassed the Zacks Consensus Estimate of 51 cents. Notably, earnings exceeded the company’s earlier guided range of 48-53 cents.
Also, the bottom line increased 12.5% from the prior-year quarter’s tally of 48 cents. The year-over-year improvement was backed by broad based growth, led by increased work for its U.S. state and local clients.
Inside the Headlines
Net revenues increased 4.1% year over year to $532.8 million, comfortably beating the Zacks Consensus Estimate of $515.3 million. The top-line figure also came ahead the upper end of the company’s estimated range of $490-$515 million. Moreover, Tetra Tech’s ongoing revenues recorded an increase of 5% year over year.
Segment-wise, Government Services Group’s revenues grew 11.2% year over year to $290.5 million, primarily driven by increase in infrastructure projects.
Net revenues from Commercial / International Services Group declined 4.9% year over year to $241.9 million. However, the downturn was partially offset by an increase in environmental projects.
In the reported quarter, backlog from ongoing operations reached $2.51 billion, an increase of 0.5% year over year. Further, ongoing operating income was up 1.9% year over year to $45.1 million.
At the end of the second quarter, Tetra Tech’s cash and cash equivalents were $203.2 million, up from $171.3 million a year ago. Also, the company’s long-term debt totaled $463.5 million, up from $341.3 million as of Oct 1, 2017.
Tetra Tech remains highly committed toward rewarding shareholders through dividends and share buyback programs. Earlier, the company had authorized a new program to repurchase up to $200 million of common stock, under which it has $50 million remaining.
On Apr 30, 2018, Tetra Tech declared a 20% hike in the quarterly dividend, increasing it to 12 cents per share payable on Jun 1 to stockholders of record as of May 16.
Concurrent with the quarterly earnings release, Tetra Tech also issued revenue and earnings guidance for both the third quarter and fiscal 2018.
The company anticipates third-quarter earnings per share to be in the range of 62-68 cents. Net revenues for the same quarter is projected between $525 million and $555 million.
For fiscal 2018, the company raised its earnings per share guidance. It now envisions earnings in the band of $2.50-$2.62 per share compared with the earlier guided range of $2.40-$2.60.
Also, based on the current market scenario, Tetra Tech revised its revenue guidance for fiscal 2018. Revenues are anticipated to lie within $2.15-$2.25 billion band, instead of the earlier guided range of $2.10-$2.20 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter.
Tetra Tech, Inc. Price and Consensus
Tetra Tech, Inc. Price and Consensus | Tetra Tech, Inc. Quote
At this time, TTEK has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for growth and to a lesser degree momentum.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise TTEK has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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