Good Buy or Goodbye: Ferrovial vs. MasTec ?
On Yahoo Finance's "Good Buy or Goodbye" segment, Tema ETF Founder Maurits Pot evaluates stock picks within the infrastructure and construction services sector. He spotlights Spanish construction giant Ferrovial (FER.MC) as a buy, while urging caution on contractor MasTec (MTZ).
Bullish drivers behind Ferrovial include its upcoming NASDAQ listing to boost visibility, expectations for substantial cash flow growth from assets, and appetite for additional infrastructure project investment globally. However, Pot warns an election year could put pressure on government construction budgets.
By comparison, Pot labels MasTec a “challenged story,” citing a heavily leveraged balance sheet, inconsistent capital stewardship, and suddenly deteriorating cash flows leaving little margin for upside on the stock.
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Editor's note: This article was written by Angel Smith
Video Transcript
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JOSH LIPTON: It's a big, noisy universe of stocks out there. Welcome to "Good Buy or Goodbye." Our goal, to help cut through that noise, to navigate the best moves for your portfolio. And today, we're diving into the construction and infrastructure sector. Here with the best way to play this space, we have Maurits Pot, Tema's ETF founder and CEO. Maurits, great to see you. Thank you for joining us.
MAURITS POT: Thanks for having me on the show today.
JOSH LIPTON: So what I love about this pick, Maurits, is that you're not coming with Microsoft, or Apple, or Nvidia. This is a different name, and one that maybe our viewers don't know so much about Ferrovial. So maybe let's just start quickly. What does Ferrovial do? What's the business here?
MAURITS POT: Ferrovial is a global infrastructure player with a big focus in US. They own toll roads, big infrastructure projects, civilian infrastructure. So, for example, they own the biggest toll road in North America. They own toll roads in Dallas, in Atlanta, New Jersey. And Ferrovial is really-- it's a firm that has a long history of operating in the space. It's done some of the best and biggest deals in the space. They manage capital allocation very carefully. They are very competitive. Yes, there are historically been Spanish. But most of their business is in North America. They're actually relisting to NASDAQ this quarter.
JOSH LIPTON: And I want to stop you there because when you go through the bullets, Maurits, when you're trying to make your bullish case here, this is the first one, let's just walk through this. The first point you're making here, and why this name is a buy, transitioning to a listing at NASDAQ. Walk us through why that's bullish.
MAURITS POT: So I think the bullishness is in realty there's more buyers for the stock on NASDAQ. The majority of the exposure from Ferrovial is in North America, not in Spain. So frankly, there's just a more-- there's a rerating story. In addition to which, I think there's an awareness story around what this company is doing in North America. So this is at the heart of what you're seeing with the infrastructure boom in North America. Infrastructure in North America, as you know, is a very hot topic right now. You saw Blackstone doing it, BlackRock doing a deal last Friday. You saw General Atlantic doing a deal today, both in the infrastructure space. So infrastructure is a space where I think there's going to be more and more interest. Ferrovial has been a long-time player in the space and done very successfully.
JOSH LIPTON: It's been a big headline-maker. Second point here, walk us through this, substantial cash flows are expected.
MAURITS POT: Yeah. I mean, if you look at the business, it's been investing for a long time. But in reality, they're not putting up prices on some of the toll roads. So you're just expected to see some material release of cash flow in the coming years as some of the CapEx cycles fade. And also, you see some of the price increases come through, specifically on the toll road business. So this is, of course, historically a CapEx-intensive business, but they manage capital very carefully. And in addition, they generate significant cash flow.
JOSH LIPTON: And finally here, likely to invest in and build more great assets.
MAURITS POT: I mean, I think right now there's an infrastructure boom that's happening in the US helped by several of the recent acts we've seen in the government. Ferrovial is well-positioned to be a beneficiary of the projects coming out of that, and has already been. Highway upgrades, new highway builds, for example, there lead bidder on the S-400 toll road coming out of Atlanta. Ferrovial is a US leader in the infrastructure space. And the government, I think, is very focused on improving the infrastructure in this country.
JOSH LIPTON: All right now, you've made a very convincing case here, Maurits, but let's say viewers, they're watching right now, before they dive headlong here, commit capital to the name, what are some risks they need to think about here?
MAURITS POT: I think some of the risks are that, in reality, there could be a slowdown in government spending on infrastructure short term, especially in an election year. We don't know what could change in an election year. I think the reality is that if there's a slowdown in general construction, Ferrovial will be impacted short-term. Long-term, we think Ferrovial is very well-positioned. And Ferrovial takes a very long-term approach to the way it manages business, which we like, and manages risk carefully. There's always risk in construction projects. Historically Ferrovial has managed those risks very well, better than its competitors.
JOSH LIPTON: All right, so you're bullish on that. And let's talk about a new name you're not bullish on, one you would avoid, and that is MasTec. Again, maybe for this name, quickly explain what MasTec does, what's the business here?
MAURITS POT: Yeah, so it's really an infrastructure and construction provider in the energy and renewable space. I think it saw a lot of hype and a lot of interest in 2021. I think it's frankly been-- it's proven to be a challenge story. And I think its--
JOSH LIPTON: Stretched balance sheet is one reason?
MAURITS POT: Streched balance sheets, I think doesn't manage capital as well. I think it structurally has a difficult balance sheet to start with. I think it obviously-- 2022, you saw a big boom in the spend. I think that's really receded very quickly. I think the secular story is not the same as with Ferrovial. And I think recently, you've really seen a collapse in the cash flow generation, partly for structural, partly for cyclical reasons. So MasTec is an example of a company that would be much more cautious on right now. Now that could change. But frankly, we don't like the fundamentals. And we don't like their track record in the way we like Ferrovial.
JOSH LIPTON: What about-- now let's talk about maybe some upside-risk to your call here. What would make you more bullish on the name?
MAURITS POT: I mean, we've seen a series of project cancelations, or project delays in the renewables space recently, because really spend has really focused on other parts of the infrastructure complex. I think longer-term there will be spend in renewables, but I think short-term they have to get through a challenge balance sheet, they have to get through a challenge capital-- cash-flow conversion cycle. And I think, frankly, if they improve, if some of these projects don't get canceled, or they get renewed, I think they'll benefit from that. But short-term, we're pretty wary and pretty careful about MasTec.
JOSH LIPTON: And MasTec, though, it's interesting, Maurits. If you look at this name, it already got beat up a bit. I mean, it's down about 30% in the past 12 months, but you obviously don't think all the bad news is priced in at these levels.
MAURITS POT: Well, when I look at the leverage, when I look at what's happening in the direction in terms of the cash-flow conversion, I'm not convinced the fundamentals are set up for this company very well. Even if the sector overall benefits, I think there's other players that could benefit more in the sector long-term.
JOSH LIPTON: All right, there's the thesis. Let's wrap this one up here. So you're telling investors buy Ferrovial based on a potential valuation uplift as it transitions to being a US group and also expectations for substantial cash flows coming for the company. And on the other hand, you're saying avoid MasTec as the company has a stretched balance sheet and its cash generation recently collapsing. Maurits Pot, thank you so much for joining us today. We appreciate it.
