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Sterling construction company

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Fundamental Analysis of Sterling Construction Co …

Fundamental Analysis of Sterling Construction Co
Dated: Fall 2013

Published in: Economy & Finance

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  • Museum of Marine Corps in Virginia – project was under $50M.
  • Jacobs earned 246M of profit in 2010. Craig Martin’s base salary is 0.4% of profit. 71% of CEO’s pay comes from stocks and options.
  • Stock price peaked in 2008 at $98 per share, and plummeted 57% to an average of $42 per share after 2008. Yet in 2010, total executive compensation was only 28% lower than its peak in 2008.
  • Transcript

    • 1. Abiram Balasubramaian Auzma Rashid Kakroo Jeffery Visava Kimaya Sadavarte Naikaj Bhobe
    • 2. Overview of SCC “Safety, Quality, People and Innovation”- Form the core of the company values 1700 Employees $700 million revenue, consistent GM ratio of >6% Transportation & Water Infrastructure Government highway projects Has seamlessly acquired other entities over the years to expand its geographic footprint Sterling Construction Company
    • 3. Geographic Presence in the US Sterling Construction Company
    • 4. Competitors Sterling Construction Company
    • 5. Executive Compensation in 2013 Sterling Construction Company -40 -30 -20 -10 0 10 20 30 2Q2013 2012 2011 2010 2009 CEO's compensation Net Income
    • 6. Executive Compensation - Justified by Performance? Sterling Construction Company Title Name Salary (including Bonus) Chairman Mr. Patrick Manning $618,240.00 Chief Executive Officer Mr. Peter MacKenna $1,701,641.00 Executive Vice President, CFO Elizabeth Brumley $345,026.00 EVP Operations Mr. Anthony F. Colombo $405,382.00 Director Mr. Milton L. Scott $75,542.00 Director Mr. David R A Steadman $75,542.00
    • 7. Market overview Sterling Construction Company  Sterling Construction relies heavily on government highway work & has been adversely affected by Congress' inability to pass the Federal Highway Bill.  In response to the uncertain outlook Sterling refocused on project execution and conservative bidding.  The Past 2 years have been difficult but Sterling has tried its best in Balance Sheet management (esp. control A/R collection days)
    • 8. Simplified Balance Sheets Sterling Construction Company Balance Sheet (All in 000,000's) 2Q2013 12/31/12 12/31/11 12/31/10 12/31/09 12/31/08 12/31/07 Assets Cash & Short Term Investments 22.03 52.35 61.23 85.19 93.73 79.68 80.7 A/R 96.24 81.82 80.93 77.04 82.62 60.58 54.39 Inv 4.6 3.73 1.92 1.48 1.23 1.04 1.24 Pre. Exp 0 0 0 0 0 0 0 Other Current assets 34.09 26.85 19.94 12.61 11.61 9.41 6.61 PPE 97.5 102.31 83.43 74.68 80.28 80 72.39 Goodwill 54.82 54.82 54.05 114.74 114.74 57.23 57.23 Other Long Term Assets 19.79 9.62 2.33 1.38 1.53 1.67 1.95 TA 329.07 331.50 303.83 367.12 385.74 289.61 274.51 Liabilities and Shareholders Equity A/P 55.82 47.87 34.43 35.43 32.62 26.11 27.19 W/P, I/P, T/P 6.35 4.91 7.34 8.41 4.66 0.55 1.1 Other Current Liabilities 29.28 24.57 27.52 25.21 38.02 30.94 32.49 LTD 47.11 41.56 19.71 47.65 79.67 72.9 75.02 PIC 200.45 199.67 197.83 199 198.06 150.35 147.92 R/E -9.94 12.92 17 51.42 32.71 8.76 -9.21 TL+E 329.07 331.50 303.83 367.12 385.74 289.61 274.51
    • 9. Simplified Income Statements Sterling Construction Company
    • 10. Backlog and Revenue Trends Sterling Construction Company
    • 11. Financial Metrics and Ratios Sterling Construction Company 11 10.11 13.91 13.63 7.95 7.53 -6.24 -10 -5 0 5 10 15 2006 2008 2010 2012 2014 Gross Profit Ratio Gross Profit Ratio 2.35 2.62 2.51 2.55 2.37 2.13 1.72 0 0.5 1 1.5 2 2.5 3 2006 2008 2010 2012 2014 Current Ratio Current Ratio 0.98 0.82 0.67 0.47 0.41 0.56 0.73 0 0.2 0.4 0.6 0.8 1 1.2 2006 2008 2010 2012 2014 Debt to Equity Ratio Debt to Equity Ratio 7.65 9.71 9.71 9.78 -17.19 4.52 -10.36 -20 -15 -10 -5 0 5 10 15 2006 2008 2010 2012 2014 Return on Assets Return on Assets
    • 12. Financial Ratios Sterling Construction Company 15.15 17.68 16.23 14.34 -24.31 7.05 -17.89 -30 -20 -10 0 10 20 2006 2007 2008 2009 2010 2011 2012 2013 2014 Return on Equity Return on Equity -3 -2 -1 0 1 2 2006 2008 2010 2012 2014 Earnings per Share Earnings per Share 64.83 53.27 77.16 61.14 58.94 47.37 143.74 0 20 40 60 80 100 120 140 160 2006 2007 2008 2009 2010 2011 2012 2013 2014 A/R Collection in days A/R Collection in days 36.42 25.54 35.38 32.56 27.24 29.97 78.47 0 10 20 30 40 50 60 70 80 90 2006 2008 2010 2012 2014 A/P payables in Days A/P payables in Days
    • 13. Ratio Overview Sterling Construction Company  Revenues declined 8.5% due to the completion of several large projects in Utah partially offset by execution on jobs in TX, CA, NV  GM impacted due to execution of several low margin contracts awarded pre-2012  SG&A increased due to long term investments in operational efficiency especially IT infrastructure, leadership team and certain non-recurring costs
    • 14. Stock Prices from Semester’s Beginning Sterling Construction Company
    • 15. Stock Prices from Semester’s Beginning Sterling Construction Company Lowest in this semester: $8.67 on 8th October 2013 Highest in this semester: $11.47 currently
    • 16. Pro forma and Trends Sterling Construction Company Future Net Income Analysis 3 6.5 10 13.5 17 0 2 4 6 8 10 12 14 16 18 2012.5 2013 2013.5 2014 2014.5 2015 2015.5 2016 2016.5 2017 2017.5 Net Income Net Income
    • 17. Sterling Construction Company
    • 18. Backlog Sterling Construction Company Backlog of 714 Million up from 656 Million last year
    • 19. Recommendations  Expand into new service lines & Geography  Increase market leadership in core geographic markets (UT, TX, NV)  Focus on shorter duration/higher margin projects  Streamline operations through functional integration of subsidiaries using the new IT infrastructure  Continue attracting new innovative talent to keep in line with the high revenue per employee (Revenue of 410,000$ per Sterling Construction Company
    • 20. SO, Should we buy this stock? Sterling Construction Company YES, This is a value stock and it is the right time to buy this stock