Motley Fool  Feb 28  Comment 
Find out how energy projects are helping the construction specialist.
Biomass Magazine  Feb 15  Comment 
MasTec Power Corp., as the EPC contractor for Georgia Renewable Power LLC, has chosen Siemens as the technology partner for two new biomass power plants, Georgia Renewable – Franklin LLC and Georgia Renewable – Madison LLC.
SeekingAlpha  Nov 22  Comment 

MasTec, Inc. (NYSE: MTZ) is involved in the maintenance, building, installation, and improvement of communication and utility infrastructure. The company was founded in 1929 and operates in the United State's heavy machinery industry as a specialty contractor. MasTec's services focus primarily on solar and wind farms, along with a variety of underground and overhead distribution systems.

These distribution systems include but are not limited to conduits, trenches, power lines, cable, and pipelines. Through its systems, MasTec is able to deliver wireline and wireless communications, crude oil, natural gas, electrical power generation and delivery, and refined products. Along with its primary operations, the company is also involved in the installation of copper lines, transmission systems, satellite dishes, fiber optic cables and distribution systems. MasTec also provides emergency assistance in the event of natural disasters and offers maintenance services for distribution facilities. The company primarily serves the communication, government, and utility industries. [1]

Business Overview


MasTec's history began in 1929 when two unemployed construction workers, Russell Burnup and Riley Sims, achieved their vision of developing a company to serve the growing civil and telecommunications market. The company enjoyed incredible success having built the first underwater telephone cable from Florida to Puerto Rico and constructing telephone networks throughout the nation. In 1969, Church & Tower, an underground utility construction firm, recruited a man by the name of Jorge Mas Canosa. Two years later, Mas Canosa bought Church & Tower, and with the help of his three sons led the company to unprecedented growth. To further expand, Mas Canosa devised a strategy which merged Church & Tower and the publicly traded Burnup & Sims in 1994. Jorge's eldest son took control of the newly merged firm, which changed its name to MasTec.


MasTec's customers are segmented into three industries and can be further classified into six categories. MasTec serves the communication, utilities, and government industries where it conducts business in the broad categories of: renewable energy, electric power, oil and gas, water and sewer, communications, and installation. Approximately half of the revenue generated by MasTec, Inc. is in the form of service and master service agreements. These contracts are typically multi-year agreements and won in a competitive bidding process. As the following graph exhibits, the relationship between MasTec and their customers is imperative. An overwhelming majority of revenue comes from only ten customers. As a result, there is a large focus on customer service to build good relations between project management teams, senior management, and customers. Strong relationships are necessary in order to prevent losing a primary customer, which would have a substantial impact on the firm's revenue. In 2010, MasTec derived approximately 24%, 20% and 9% of their revenue from The DirecTV Group (DTV) , AT&T (T), and El Paso Corporation , respectively. [2]

Along with the three companies mentioned above, the other customers rounding out MasTec's top ten consist of: Enbridge, Tenaska Energy, Edison Mission Energy, Talisman Energy, Duke Energy, CenturyLink and Great River Energy.


MasTec's primary operations are in the United States, although there is a small portion of its business conducted overseas. In 2009 and 2010, the company took in $5.1 million and $2.8 million respectively from its foreign operations. These earnings are relatively trivial in the overall scope of their business however. The core services offered by MasTec can be broken down into three categories: build, install, and maintenance and upgrade. The corporation offers and provides similar services to all of its customers. [2]

Build- In this segment, the primary focus is on natural gas, crude oil and refined product transport pipelines, underground and overhead distribution systems, wireline and wireless communications, and the construction of renewable energy infrastructure. Two of the primary services offered through the renewable energy infrastructure product line are the construction of solar and wind farms.

Install- In this segment, the services that are offered consist of the installation of: copper lines, energy distribution systems, fiber optic cables, satellite dishes, and transmission systems. This segment also contains the management of customer's network connections including their software, hardware, and network equipment.

Maintenance & Upgrade- This category of MasTec's business consists of an all day, every day, program that provides upgrade support and maintenance to its communications, utility, and government customers. The program offers customers access to services which include: emergency service, regular maintenance of networks, infrastructure and distribution facilities, routine replacements, and major overhauls.

Operating Segments

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As stated previously, all of MasTec's customers are offered the services discussed within each of the service categories. MasTec breaks down the revenue obtained through its services and monitors the success of its business operations through careful evaluation of its one reportable operating segment, as a specialty trade contractor, which is comprised of the communications, utilities, and government industries. MasTec's subsidiaries are combined into a single operating segment due to their similar service offerings, economic characteristics, processes, and customers. The graph to the left represents the composition of the firm's revenue by industry. [2]

The graph shows a steady decline in the percentage of revenue obtained from both the government and communication sectors. In the utilities industry, however, MasTec has witnessed an increase of 13% since 2008. This increase may have stemmed from tax incentives offered to companies willing to invest in alternative and renewable energy sources. Also, there has been a substantial increase in the demand for natural gas, which has presented MasTec significant growth opportunities in this segment. [2]

Primary Competitors

Pike Electric Corporation (NYSE: PIKE) also operates as a general contractor. The company was developed in 1945, and currently operates out of Mount Airy, North Carolina. The majority of the firms services are in the area of power delivery systems where it conducts permitting, siting, engineering design, maintenance, installation, and repair. Along with its core operations, the company also conducts projects involving renewable energy. These operations allow the firm to facilitate permits and negotiations for the installation of power delivery and renewable energy services. In addition to these services, Pike also offers construction for both above and below ground power lines with voltages of up to 345kV. While it only constructs up to 345kV, it will provide maintenance work for voltages measuring 500kV. Also, the company offers its customers a total energy solution program. This program is comprised of the planning, siting, permitting, engineering, and construction necessary to meet its customer's energy needs. The firm also has a sector which is involved in restoration in the event of a natural disaster. Storm restoration can make up a significant portion of the firm's revenue; however these revenues vary substantially from year-to-year. The table to the left exemplifies the variation in revenue derived from this segment and presents storm revenue as a percentage of Pike's total revenue. [3]

Quanta Services (NYSE: PWR) is also considered a primary competitor of MasTec. Quanta Services is relatively new to the industry compared to the other four firms compared in this analysis. The company was founded in 1997, and reiterates the ease of entering the general contracting industry so long as the company has sufficient resources. Quanta Services operates out of Houston, Texas as a specialty contractor. The firm is comprised of four operating segments which include Electric Power Infrastructure Services, Natural Gas and Pipeline Infrastructure Services, Telecommunications Services, and Fiber Optic Licensing. In the Electric Power Infrastructure Services, Quanta offers installation, upgrade, repair, design and maintenance of electric power distribution and transmission, wind turbines, restoration, and substation facilities. Within the Natural Gas and Pipeline Infrastructure Services operating segment, customers are provided network solutions related to the transport of oil, natural gas, and other pipeline products. Similar to the Electric Power segment, this segment is also involved in the design, repair and installation of distribution systems, gas gathering, and compressor and pump stations. Additionally, this segment also consists of construction and repair of airport fueling, water and sewer infrastructure. Its third operating segment, the Telecommunications Infrastructure Services, participates in the maintenance, installation, design, and repair of networks used for data, video, and voice transmission. Also, the company designs and installs wireless communication devices for the cable and telecommunication industries. The final segment, Fiber Optic Licensing, is involved in fiber optic telecommunications infrastructure. This segment also brings in significant revenue through licensing the rights to use its point-to-point fiber optic telecommunication facilities. [4]

Dycom Industries, Inc. (NYSE: DY) is a specialty contractor which operates out of Palm Beach Gardens, Florida. The firm offers services throughout the United States and Canada. The company offers a wide array of services from engineering to underground utility locating. Within the engineering services segment, the company provides the design of terminals, transmission equipment, fiber cable routing, and distribution cable pairs. In its underground utility locating segment, the company locates cable television, water, power, telephone, and gas lines for a variety of utility companies. Beyond these segments, the company is involved in the maintenance and construction of electric utilities, power distribution lines, and natural gas transmission and distribution. The firm provides these services, along with numerous others, to various corporations and also to state, local, and federal government. [5]

Financial Metrics

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As exhibited by the table on the right, MasTec has experienced steady increases in almost every financial component over the past three years. Since 2008, the firm has had revenues rise from $1.38 billion to $2.31 billion, a 67% increase. In just the past year alone MasTec has increased its revenue by approximately $690 million. More importantly, MasTec also managed to increase its level of net income by around 28% over the past year and 7.5% during 2008 through 2009. The EBITDA value provides a measure that is useful in determining a firm's operational profitability by removing the impact of accounting and financial decisions. This allows competing firms to be analyzed and compared more effectively, and will be discussed in further detail in the competitive analysis section. Similarly, the 2.6% increase in EBITDA margin since 2008 is evidence of the firms ability to limit the effects of expenses that reduce the company's bottom line. During this time, the firm has also seen substantial rises in its operating margin. Over the past year, MasTec's operating margin has increased approximately 1.8%, which further evidences the firm's ability to generate more dollars per sale after accounting for its variable expenses. [2]

While the firm has performed very well in the metrics above, MasTec has struggled since 2008 in its ability to improve its return on assets (ROA) and return on equity (ROE). While these ratios have improved over the past year, ROA and ROE are still down 1.34% and 2.1% respectively relative to the firm's 2008 performance. MasTec's asset turnover, quick ratio, and financial leverage has remained relatively steady over the past three years. Its ability to turnover assets has played a critical role in reducing its cash conversion cycle to one of the lowest values of the firms compared in this analysis. Furthermore, since the company's quick ratio is greater than one, suppliers are willing to extend credit terms knowing that MasTec is able to meet its short-term financial obligations. [2]

The table to the left represents the cash conversion cycle (CCC) of MasTec and three of its primary competitors. The cash conversion cycle is determined through analyzing a firms days sales of inventory (DSI), days sales outstanding (DSO)), and days payables outstanding (DPO) respectively. Through the combination of these metrics, one is able to view the firm's ability to finance its operations internally. A negative CCC indicates a firm that is able to finance its operations interest free. Of the companies in this analysis, no firm has managed to obtain a negative CCC value. As a result, MasTec, Dycom, Pike, and Quanta Services are essentially providing their suppliers and customers free loans. Of the four firms, MasTec has the lowest CCC value at 44 days; whereas DY, PIKE, and PWR are giving their customers loans of 66, 78, and 67 days respectively. MasTec has been able to accomplish this through excellent credit terms with its suppliers, which allows them to take longer in paying back short term payables. In 2010, accounts payable represented only 10% of MasTec's cost of goods sold. Creditors were willing to extend such generous credit terms due to the firm's available cash and accounts receivable surpassing its accounts payable by approximately $426 million, and its positive working capital of $235 million. MasTec also excels in its days of sales inventory, which is almost 10 days lower than its closest competitor. This allows the firm to turnover its inventory much quicker than its competition. While the firm excels in its DSI and DPO, its DSO value is among the highest of the companies compared. MasTec's generous credit terms for its customers negatively impact the firm as they are forced to wait a longer period of time before reinvesting its accounts receivables. Through tightening their credit terms to levels similar to Dycom or Pike, the firm would benefit by further reducing its overall cash conversion cycle. [6]


One of the most important aspects to take into consideration when evaluating a firm is their potential or actual value relative to their perceived market value. A method for evaluating the market's perception of a firm's value is through analyzing the company's economic value added, or EVA. The following table summarizes the return on invested capital (ROIC) and weighted average cost of capital (WACC) of MasTec and three of its primary competitors. These numbers are used, in conjunction with the firms invested capital, to calculate the EVA.

As the table to the left exhibits, all the firms compared in the specialty contracting industry have negative EVA values. This indicates the inability of firms operating in this industry to create value above the shareholders required return. Of the four firms evaluated, Pike Electric, MasTec, and Dycom have similar EVA values which range from -40.5 to -56.6. Quanta Services, on the other hand, is significantly lower at -260, meaning it is unable to provide its shareholders any additional value beyond their required return. MasTec and Pike are able to obtain capital for 1.3% and 2.7% cheaper than Dycom and Quanta Services respectively. This signifies that MasTec and Pike's shareholders require less return on their investment. Although Pike is able to obtain capital at a much cheaper cost than Dycom and Quanta Services, the company has failed to capitalize on its lower weighted average cost of capital (WACC), which is evidenced by its negative return on invested capital. [6]
The EBITDA multiple offers investors an adequate alternative to the Price to Earnings ratio. This value is useful when performing a competitive analysis, as it offers a means to compare firms with different degrees of financial leverage. The table in the competitive analysis section shows that the financial leverage ratios of the compared firms ranges from 1.31 to 2.57. These numbers indicate the firm's ability to utilize borrowed funds. Through use of the EBITDA multiple, these variations are eliminated allowing a less biased valuation when comparing firms. As the table to the right shows, firms are willing to pay, on average, approximately 9.52 times EBITDA to acquire these specialty contracting companies. [7] Of the four firms, Pike Electric exhibits the highest multiple at 13.07, which is 3.85 times larger than that of Quanta Services. This could be attributed to Pike's more specialized focus in the areas of restoration and electric utilities. Being more narrowly focused can result in a higher multiple when the specific segment is performing well; however, firms with a more diversified line of services, such as Quanta Services and MasTec, have a lower level of risk in the event of poor performance in one of its operating industries. Dycom has the lowest EV/EBITDA multiple at 6.83. Since the contracting industry experiences relatively slow growth, the value of its multiples tend to be somewhat low. A very low multiple can indicate that a firm that is undervalued, making it a good candidate for takeover. [2]

Operating Metrics

MasTec, Inc. operates in a highly competitive industry which is heavily reliant upon economic conditions. An important focus of MasTec's strategy is focusing on projects which yield high returns. One of the highest costs associated with contracting a project is labor. The following graph represents the ability of four competitors within the industry in maximizing their employees productivity. These figures indicate that MasTec, and three of its primary competitors, all generate over $100,000 per hired employee. Of the four companies, Quanta Services is the clear leader in employee productivity generating an additional $40,000 over MasTec. Although MasTec, Inc. falls short of Quanta Services, it generates approximately $130,000 and $134,000 per employee beyond that of Pike Electric Corporation and Dycom Industries respectively. Along with evaluating the amount of revenue generated by each employee, analyzing the amount of net income derived per worker is also useful in determining the productivity of a firm's employees. This figure represents the amount of income produced per worker after taking into account operating expenses, non-recurring events, interest expense, and taxes. After taking these expenses into account, the firm's net income per employee follows the same order as revenue per employee, however the differences between firms are more substantial. While Quanta Services only generated $40,000 in additional revenue per employee beyond MasTec, its net income per employee surpasses MasTec by approximately $57,300. The level of income generated per employee for MTZ, PWR, PIKE, and DY measured around $9,630, $67,000, $2990, and $657 respectfully. [2]

The graph to the left summarizes the distribution of MasTec's revenue based on the type of contract. It is imperative to monitor movements in the percentage of revenue derived from master service or other service agreements and installation and construction project agreements. As the graph shows, there has been a consistent rise in the level of installation/construction project agreements since 2008. These contracts are non-recurring and therefore can result in a future decrease in the firm's revenue if not replaced. If the firm is unable to retain its level of installation and construction contracts, it faces the threat of significantly reduced revenues. Master service agreements typically last around three years and are a steady source of revenue for a firm operating in the contracting industry. By maintaining a high level of master service agreements, the firm is essentially locking into guaranteed profits for the duration of the service contract. [2]

The graph on the right hand side of the page, evaluates the percentage of master service agreements and installation and construction contracts (fixed-price agreements) of Dycom, Pike and MasTec during 2010. As the graph shows, Pike Electric Corp. distributes a large portion of its resources towards master service agreements. By allocating 87% of its business to master service agreements, the firm experiences more consistent and secured revenues. MasTec, on the other hand, has a significant portion of its operations conducted in fixed-price agreements. As mentioned in the previous paragraph, this puts the company at risk if they are unable to acquire new business when these contracts expire. While MasTec and Pike Electric appear to be on the extremes, Dycom Industries falls somewhere in between allocating approximately 3/4 of its contracts to master service agreements and the other 1/4 to fixed-price agreements. [2]

Another operating metric which is useful in determining expected revenue from future work on uncompleted contracts is a firm's backlog. Backlog can include both unrealized revenue from current uncompleted contracts and new contracts under which work has yet to begin. The backlog estimates also take into account maintenance contracts which are long-term. Determining the potential revenue that is expected to be earned from long-term maintenance contracts varies from firm to firm; however, most companies take into account seasonal factors, project customer needs, and evaluate historical trends. The chart on the left displays the total amount and 12 month estimations for the three competitors backlogs.

As the table shows, Quanta Services has by far the largest total amount of potential backlog revenue. MasTec, Incorporated is a distant second, with $2.4 billion; however, the company only provided its backlog for a period of 18 months. Neither Dycom nor Quanta Services disclosed the duration of their backlog so comparisons with MasTec in terms of total backlog revenue lacks validity. The 12 month figures are based on the firm's estimate of expected backlog revenues to be realized during the 2011 year. Based on these values, it is evident that MasTec is expecting to realize the vast majority of its backlogged revenue. The figures show that MasTec has estimated realization of 72% of its 2010 backlog. In monetary terms, Quanta Services still expects to receive a greater amount of backlogged revenue than MasTec in the 2011 year; however, while the firm is projecting revenues at $2.87 billion, the company only expects to realize 45.4% of its backlog revenue during 2011. Dycom has also projected a much lower realization of backlogged revenue than MasTec on a percentage base, with estimated realizations accounting for only 57.5% of total backlog revenue. Although these revenues represent a potential larger source of income, it is imperative to understand that these values are strictly estimations and actual results are contingent upon numerous influencing factors. [2]

Another operating metric that plays a critical role in the contracting industry is the degree to which a firm relies on its customers. In this industry, the success of many companies hinges on a relatively small number of customers. As the table on the right shows, the four firms compared in this analysis all derive a large portion of their revenue from 10 customers or less. MasTec, Pike Electric, and Quanta Services earn 72%, 59%, and 39% of their total revenue from 10 customers respectively. This high level of dependence on a relatively low number of customers requires a significant emphasis to be placed on retaining current sources of revenue. MasTec, in particular, is especially vulnerable. If one of MasTec's primary customers were to discontinue business with the company, revenues would decline substantially. Although MasTec is in a precarious position, Dycom is in an even more critical position as 64% of its revenue is obtained through only 5 customers. [2]

SWOT Analysis

  • Strengths

As indicated through many of the tables, graphs, and charts included in this analysis, MasTec is a strong competitor in the contracting industry. One reason for the firm's success is its exceptional leadership. MasTec's operations are largely influenced by decisions made by the Mas family. The Mas family owns approximately 28% of the outstanding shares of common stock. While in many instances investors may disapprove of nepotism throughout top level management, the significant investment the Mas family has in the corporation ensures their actions are aligned with the firm's remaining shareholders. [2]

While the company always faces the threat of losing essential customers, one of its strengths has been in its ability to maintain excellent relationships with its top customers. MasTec has limited this threat through its ability to create longstanding relationships and has also signed multi-year master service agreements with its most essential customers. Another strength of the firm is the similarity of its end markets. Since the services MasTec provides to the Communication, Utility, and Government industries are closely related, the company benefits through synergies. By offering similar services, MasTec is able to utilize its key personnel across a variety of projects for differing end markets.

As exhibited in the backlog comparison found in the operating metrics section, MasTec also excels in its ability to turn potential revenue into realized profit. Although the actual profit is subject to fluctuations, MasTec has been incredibly consistent in its ability to realize backlogged revenue. Of the three competitors recording backlog revenue, MasTec projects the highest percentage realization of this untapped source of funds at 72%. [2]

  • Weaknesses

One of the company's greatest weaknesses is their reliance on a limited number of customers. While other competitors face similar circumstances, MasTec is one of the most dependent of the four firms evaluated in this analysis. When the revenue from the top ten customers is further broken down by individual company, MasTec's flow of revenue exhibits the greatest dependence on a single customer. As discussed previously, DIRECTV is MasTec's primary customer, encompassing 24% of the firms revenue in 2010, and over 30% in each of the previous two years. MasTec's competitors, Dycom, Pike Electric, and Quanta Services, were less dependent receiving 20%, 22%, and 11% from their top customer respectively. While Dycom and Pike Electric differ by only 4% and 2%, this is substantial in terms of the overall value of revenue. [2]

Another weakness of the firm is their contract composition. As stated previously, MasTec has allocated only 55% of their resources towards master service agreements. This creates uncertainty in regards to the future flow of revenue. While placing a significant amount of resources in fixed-price agreements can lead to short-term boosts to revenue, it simultaneously puts the firm at risk if they are unable to sign additional business upon the conclusion of the contract. [2]

At one time, MasTec's tax rate was one of its largest assets; however, during 2010 it became more of a weakness. In 2009, the firm's effective rate was 10.6%. Over the past year, this rate increased significantly to an effective state and federal tax rate of 41.3%. This 30.7% increase resulted in $55 million in additional taxes on income. [2]

  • Opportunities

The majority of growth opportunities for MasTec are through successful acquisition and retention of business in the areas of expansion mentioned below in the industry trends section of this analysis. A brief overview of these potential areas of growth include: expansion of natural gas pipeline, $66 billion allocated to increases in infrastructure needed to generate additional wind power, 69% annual increase in photovoltaic market, hundreds of billions towards the maintenance, improvement and upgrade of distribution and transmission lines, and satisfying the exponential demand for wireless and wireline technology. [8]

  • Threats

Although employing multiple members of a single family with a majority stake in the company can be considered a strength, it also presents a threat to the firm. While the firm has experienced incredible success under the leadership of the Mas family, having management with such a large stake in the company can limit the decision making ability of other shareholders. The company is also at risk, along with other players in the industry, to the overall condition of the economy. If federal and state budgets continue to shrink, this can lower the amount of founds allocated by the government for expansion, improvement, and maintenance on various infrastructure. Furthermore, MasTec's involvement in renewable energy could also be impacted if the current tax incentives for these programs expire.

Another threat facing MasTec is related to its business relations with DIRECTV. Currently the company provides maintenance and installation services, along with marketing and sales services for DIRECTV. This relationship could be impacted if Red Ventures LLC were to exercise its purchase option agreement for DirectStar. DirectStar is a wholly owned subsidiary of MasTec which provides sales and marketing services on the behalf of DIRECTV. If Red Ventures were to acquire this subsidiary, MasTec's revenue from DIRECTV would fall substantially. In 2010, DIRECTV was MasTec's largest customer. If this agreement would have been executed in 2010, revenues from DIRECTV would have decreased 5%, an approximate $115 million decline. [2]

Industry Overview

The industrial industry is extremely competitive. MasTec faces competition from not only national firms, but also local independent companies which operate on a more specialized basis. Some of the primary competitors in this industry consist of: Dycom Industries, Inc., MYR Group, Quanta Services, Inc., Pike Electric, Inc., M.A. Mortenson Company and D.H. Blattner & Sons, Inc., and Bechtel Corporation.

Industry Trends

Increased Demand and Production of Natural Gas

MasTec's acquisitions have increased the companies presence and capabilities in dealing with natural gas infrastructure. The company is involved in the construction and maintenance of pipelines, treatment plants, and compressing and pump stations. As the demand for natural gas rises in response to its cost advantage over fossil fuels, the company is likely to see an increase in the demand of these services. A report from the North American Electric Reliability Corporation (NERC) stated that during 2011 the level of natural gas-fired on-peak capacity will surpass that of coal. Furthermore, a study conducted by Interstate Natural Gas Association of America projected approximately 28,900 to 61,900 miles of natural gas pipeline will be needed by 2030. This works out to nearly $5 to $7 billion in annual infrastructure expenditures over the next 20 years. [2]

Renewable Energy

As the price of gas continues to rise, the necessity of finding alternatives to foreign oil sources is becoming more apparent. The Environmental Protection Agency declared that 36 states have agreed to setting a target for a certain percentage of their energy supply coming from renewable energy sources. The American Recovery and Reinvestment Act of 2009 also continues to provide tax incentives and loan guarantees to companies willing to expand solar, wind, and biofuel infrastructure development. However, these incentives are under the threat of possible reduction due to the necessity of cuts in the federal budget.

  • Wind

At this time, only 2% of the nation's energy is supplied by wind power. This segment provides huge potentials for profit as the Department of Energy (DOE) has plans to increase the amount of power generated by wind to 20% of overall demand by 2030. Increasing the supply by this amount will require the investment of billions of dollars to create wind farms and the necessary transmission mechanisms. According to Emerging Energy Research, this number is expected to be around $66 billion through 2013 alone. [8]

  • Solar

In just under ten years, the United States has witness a growth in photovoltaic market of 431 MW, an average increase of 69% annually. The nature of MasTec's business allows it to take advantage of the growth in this market which is expected to be driven by government incentives. According to projections by NERC, the level of solar power is expected to rise well over 12,000 MW over the next ten years. [8]

Inadequate Transmission and Distribution Networks

As the United States' transmission and distribution infrastructure ages, it is requiring more extensive maintenance and upgrades to avoid delivery failure. Furthermore, as the population increases and demand for electricity continues to grow modifications to the current infrastructure will become a necessity. As seen in the 2010 Annual Energy Outlook, energy consumption is expected to rise by 14% in conjunction with an increase in population of 28% from 2008 to 2035. In order to satisfy this increase, NERC estimated that over 34,000 miles of additional circuit most be added to current infrastructure. It is expected that this infrastructure will require investments of nearly $27 billion from 2009 to 2013, and approximately $300 billion by 2030. This offers a substantial opportunity for firms in the specialty contracting industry to obtain a steady source of revenue. [2]

As discussed above, significant investments are also being made in renewable energy. This will require transmission lines to connect more populated areas to the often remote location of these solar and wind farms. In another report made by the EEI, estimations are in the neighborhood of $37 billion to address this need by 2020. Growth in this segment is also being stimulated by state level renewable portfolio standards. According to a report by the Brattle Group in 2010, if current state portfolio standards rose to a 20% federal standard, investment in renewable energy would increase by approximately $80 billion to $130 billion. [8]

Also, efforts are being made to modernize current transmission systems. This category of projects is known as "Smart Grid" projects and have been allocated $11 billion by the ARRA. [2]

The segments related to the development, maintenance, and upgrade of various areas of transmission and distribution infrastructure offer significant sources of revenue to companies operating in this industry. If MasTec were able to sign master service agreements in one or more of these categories, it would provide not only a consistent source of income, but also further diversify their reliance on a relatively small number of customers.

Increased Demand for Technological Services

To accommodate the exponential increase in the country's need for internet, wireless, and mobile technologies, the government signed The American Recovery and Reinvestment Act of 2009 (ARRA). This regulation allocated $7.2 billion to fund the growth in broadband deployment in rural areas without sufficient high-speed infrastructure. Of this $7.2 billion, $6.1 billion has been awarded to many customers of firms in this industry. As these projects take off in the next few years, firm's competing in this market can expect to realize profits from allocation of funds promoted through the ARRA. [2]

The Federal Communications Commission (FCC) has estimated that mobile data demand will surpass the available wireless capacity by between 25 and 50 times the level of current demand in only five years. The investment in infrastructure in this segment is facilitated by a decrease in equipment cost and the continued increase in capabilities of wireless and wireline network equipment. Telecommunication companies are also replacing copper lines with fiber optic lines. This benefits firms such as Quanta Services, which has an operating segment devoted to the licensing of fiber optics. ARRA has set aside $7.2 billion for the improvement of these broadband facilities across the United States. Furthermore, areas that currently do not have access to broadband, have been awarded an additional $4 billion grant. [2]

Competitive Analysis

The table to the right comprises a list of metrics that are valuable in the comparison of firms. In terms of sales, Quanta Services is by far the largest pulling in $3.93 billion in 2010. MasTec, a distant second, brought in $2.31billion, and is followed by Dycom and Pike which earned approximately $988.6 million and $504.1 million respectively. [5] While Quanta Services surpasses MasTec in the overall monetary value of revenue, MasTec experienced revenue growth of 42% compared to only 18.5% growth by Quanta Services in 2010.[4] As mentioned previously, EBITDA represents a firms net income with taxes, interest, amortization, and depreciation. By adding these values back into net income, the metric can be used to make comparisons of the profitability of different firms. As the chart shows, the firm's EBITDA performance follows the same order as revenue. The EBITDA margin is also a measure used to compare firm's performance. By excluding depreciation and amortization, the measure provides a clearer view of the firms core profitability. Although Quanta Services exceeds MasTec's EBITDA by $160 million, MasTec surpasses its competitor in EBITDA margin. Of the four competitors, MasTec has the highest EBITDA margin at 10.51%, compared to 10.23%, 8.13%, and 6.24% for PWR, DY, and PIKE respectively. [3] The efficiency of MasTec's operations is also evidenced through its operating margin. While Quanta Services exhibits a solid operating margin at 6.52%, MasTec's 7.99% operating margin is significantly higher than that of other two competitors. This indicates the company's ability to turn profit after accounting for its variable expenses. Return on assets (ROA) measures managements ability to generate earnings from its assets. Similarly, return on equity (ROE) represents the level of profit generated through money invested by shareholders. As the table shows, MasTec far surpasses its competitors in these metrics, exhibiting a 2.34% and substantial 10.57% lead over its second closest competitor in ROA and ROE respectively. MasTec's profitability relative to its assets can be partially attributed to its ability to turnover its assets. As seen in the table, MasTec generates $1.52 in revenue for every dollar of assets.[9] This is further evidences the efficiency of MasTec's operations. While MasTec appears to excel in almost every metric represented in this table, one area of potential weakness is its quick ratio. While it is often presumed that a ratio above one is adequate, when compared to competition in the specialty contracting industry, MasTec lags behind. The quick ratio measures a firm's ability to meet its short-term obligations. Although MasTec's ratio clearly indicates this ability, other firms appear to be in a better position to satisfy obligations in the short-term. Even with a lower quick ratio than three of the four competitors compared in this analysis, MasTec's suppliers are still extending the firm generous credit terms, as evidenced in its cash conversion cycle. The last metric compared in this analysis is financial leverage. As the table shows, MasTec has the largest leverage ratio at 2.57. Financial leverage indicates the degree to which a firm takes on debt in order to increase production volume. While increased debt presents increased risk of default, it also provides a firm cheaper capital through which it can generate higher returns. The ROA and ROE values in the table evidence MasTec's ability to use debt to increase returns.

Porter's Five Forces Analysis

  • Threat of Entry

In this industry, there are very few barriers that prohibit companies from entering the market. In MasTec's case, this can harm the company's bottom line as firms with sufficient resources are able to enter the market almost willingly and cannibalize market share. To compete and maintain its share in the market, MasTec attracts and retains customers based on its industry expertise, reputation, widespread presence, and customer service. In this industry, however, business is typically awarded through means of a bid process. As a result, price is often the primary factor in the customer's decision in awarding a contract. This exposes MasTec to the risk of being undercut by a firm with lower operating costs, allowing them to bid for the business at a lower price. Of the 9,400 employees at MasTec, 1,110 are unionized. This can put the company at a disadvantage as a result of its obligation to collective bargaining agreements. The company's commitment to specified wages can result in it losing business to smaller firms where unionization isn't as prevalent. [2]

  • Rivalry Among Competition

Competition in the contracting industry is highly intense. MasTec's competitors range from small, locally owned operations to large national firms. The contracting industry is also highly fragmented making it difficult to obtain a significant portion of market share in any particular end market. As mentioned in the previous section, contracts are often awarded on a bid process. This further intensifies competition as firms are forced to compete continuously for additional business.

  • Bargaining Power of Customers

Customers in this industry have a high level of control in determining the terms of an agreement. Due to the large numbers of firms servicing this industry, customers have a wide range of companies vying for their business. This allows customers to pick and choose their contractor based on a variety factors, most often, price.

  • Bargaining Power of Suppliers

In the contracting industry, the bargaining power of suppliers is moderate to relatively low. There are many firms which supply the raw material necessary for MasTec, and other firms, to facilitate construction, maintenance, or installation for a variety of end markets. This allows companies competing in this industry to negotiate prices and reduce their reliance on a single supplier. For many of MasTec's contracts, the customers actually supply the materials necessary for the project. This further reduces the level of supplier power, as contracting firms are not required to acquire or cover the cost and warranty for necessary materials. In some of MasTec's end markets, essential materials are provided by relatively few suppliers. In these instances, supplier power increases to some degree; however, MasTec isn't reliant on one particular supplier in any of its operations.

  • Threat of Substitutes

There are few subsititues for the services provided in the contracting industry. Depending on the nature of the project, the only two alternatives for accomplishing the task is to conduct the work through internal operations or contract the work to a firm specialized in the area of the given project. In the contracting industry switching costs are low, as consumers are able to acquire different contracting firms for their various projects. Due to the vast number of firms competing in the industry, the consumer also has the ability to determine the correct firm for the project based on preferred characteristics.

Strategy Analysis

Strategic Framework

The company's strategy is broken down into five key elements which include: a focus on growth opportunities, operational excellence, maintaining desired capital structure, acquired integration, and leveraging core expertise. [2]

Growth- MasTec operates in an environment which is rich with opportunities for growth. Since 2007, MasTec has actively pursued an expansion and diversification strategy. In particular, the company is expecting a continued increase in investments toward renewable energy infrastructure. Also, MasTec expects to see an expansion in wireless infrastructure as consumers continue to demand higher access and availability of wireless connections.

Operational Excellence- One of the company's primary goals is to achieve higher margins through leveraging opportunities within its own business. In addition, MasTec pursues projects that offer higher returns through managing the bidding procedures for customer contracts. In order to continue improving its efficiencies, the firm is working to increase accountability, the profitability of individual projects and expand its use of management information and financial systems.

Capital Structure- MasTec maintains a rather conservative capital structure. This has been accomplished through the offering of senior notes (2007), expanding their credit facility (2008), and two different offerings of senior convertibles (2009). Their dedication to this structure has resulted in consistent credit ratings.

Acquired Integration- As a result of quite a few recent acquisitions, one of the primary goals is the prompt but proper integration of these acquired firms. The company is attempting to merge these acquired businesses in an efficient manner while eliciting their maximum potential.

Leverage Core Expertise- In order to continue growing, the company has stated it will continue pursuing possible acquisitions or alliances which allow it to expand into desired areas or offer products to consumers in selected fields.

Key Personnel


The table above summarizes MasTec's executive management. [10] Information regarding the executives' age, pay, prior employment and education is included. The graph on the left represents changes in the total level of compensation for executives at MasTec from 2006 to 2010. [11] As the graph shows, total executive compensation remained relatively steady through 2009, varying by only $700,000. In the past year, however, the total salaries skyrocketed for MasTec executives, increasing approximately 127%. Although executive compensation rose substantially, revenue, net income, and stock returns also experienced significant improvements in 2010, increasing 42%, 28%, and 17% respectively.

Geographic Distribution

The graph below represents the geographic location of MasTec's featured projects. The industry of the featured project is indicated in the map legend. This visual is from the company's website. Image:MTZ_Geographic_Distribution.JPG Image:MTZ_Map_Legend.JPG [12]


  1. "MasTec, Inc. General Info" accessed April 26, 2011
  2. 2.00 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 2.11 2.12 2.13 2.14 2.15 2.16 2.17 2.18 2.19 2.20 2.21 2.22 2.23 2.24 "MasTec, Inc. 10-K" accessed April 27, 2011
  3. 3.0 3.1 [http://finance.yahoo.com/q/pr?s=PIKE+Profile "Pike Electric Corp." accessed April 27, 2011]
  4. 4.0 4.1 [http://finance.yahoo.com/q/pr?s=PWR+Profile "Quanta Services" accessed April 27, 2011]
  5. 5.0 5.1 [http://finance.yahoo.com/q/pr?s=DY+Profile "Dycom Industries" accessed April 27, 2011]
  6. 6.0 6.1 [Accessed information via Bloomberg Terminal at Michigan State University "Bloomberg Terminal" accessed April 25, 2011]
  7. "MasTec, Inc." accessed April 27, 2011
  8. 8.0 8.1 8.2 8.3 "MasTec, Inc." accessed April 27, 2011
  9. "MasTec, Inc." accessed April 26, 2011
  10. "MasTec, Inc. Executive Info" accessed April 26, 2011
  11. "MasTec, Inc. Management" accessed April 26, 2011
  12. "MasTec, Inc. Featured Projects" accessed April 26, 2011
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