Maxim Group
What started as a U.S. shale oil and gas boom has now become a
true North American phenomenon, creating opportunities all along
the value chain.
After peaking in late June, world oil prices have fallen about
20%, prompting speculation that capital-expenditure spending may be
deferred as explorer and producers (E&Ps) see lower returns on
investment. However, in spite of recent declines, channel checks
indicate a resilient market in North America, with a favorable
outlook for capital-expenditure spending.
This bodes particularly well for specialty contractors like
Quanta Services (ticker: PWR) and MasTec ( MTZ), which have
significant pipeline exposure and stand to benefit materially from
the build-out of infrastructure related to U.S. shale oil and
gas.
Furthermore, opportunities abound in Canada and Mexico,
following the latter's recent decision to allow direct foreign
investment in oil and gas resources. We highlight MasTec's recent
acquisition of Pacer Construction Holdings [of Calgary] and its
recent award for a 24-inch pipeline crossing the Rio Grande River
into Mexico as examples of how the dash for unconventional oil and
gas resources has pushed beyond U.S. borders.
As we anticipated, the third quarter saw announcements for
large-scale transmission awards, and we anticipate further
announcements through the fourth quarter and into fiscal 2015. This
quarter saw Quanta record its largest individual transmission
project ever, the Labrador Island Link Transmission project, of
which Quanta was awarded over $500 million. This is a large-scale
project encompassing 684 miles of 350 kilovolt (kV) transmission
line. We look forward to similar announcements of large-scale
transmission and distribution projects from MasTec, MYR Group (
MYRG) and more-regional player PowerSecure International ( POWR)
over the coming quarters.
Catalysts for the space include regulatory pressures, such as
Federal Energy Regulatory Commission (FERC) Order No. 1000, the
Environmental Protection Agency's Mercury and Air Toxics Standards,
and the recently upheld "good neighbor" provision of the EPA's
Transport Rule, which may accelerate the shutdown of coal-fired and
oil-fired generating plants, resulting in the need for line
upgrades and new substations, having a long-term positive impact on
electric-transmission development.
For MRC Global ( MRC), due to the near-term macro headwinds, we
are slightly reducing our non-GAAP earnings-per-share estimates for
the third and fourth quarters to 45 cents and 45 cents,
respectively, from 48 cents and 49 cents, respectively. In
addition, for MasTec, we are slightly reducing our estimate for
fiscal 2014 non-GAAP EPS to $1.54, from $1.56, to reflect near-term
challenges, primarily related to the recent acquisitions and
deferred capital-expenditure spending from AT&T ( T).
-- William Bremer
-- Joseph Nelson
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