MTZ, Auric sez, sell it to them: "Bright look for MasTec questioned. As Miami's MasTec gets ready to release earnings amid upbeat ratings by most analysts, a researcher and several analysts are raising questions about $33.8 million in employee payouts and whether slowing fiber optic construction will start to hurt the company's fortunes.
John T. Fakler
As Miami's MasTec gets ready to release earnings amid upbeat ratings by most analysts, a researcher and several
analysts are raising questions about $33.8 million in employee payouts and whether slowing fiber optic construction will
start to hurt the company's fortunes.
Despite a drop in the company's stock from almost $60 in May to $40 this week, 11 brokers recommend MasTec
(NYSE: MTZ) as a "strong buy."
A RagingBull.com consensus of individual investors following MasTec also rate the stock a "strong buy." Zack's, Banc
of America and FirstUnion reiterated "strong buy" ratings recently, helping to spur the share price slightly while
12-month target prices of $90 and higher are the rage.
Institutional investors have been snapping up the stock at breakneck speed 8.37 million shares during the latest
quarter compared with less than 3 million shares for the previous quarter and the year-ago quarter. Institutions such as
mutual funds now own 59.9 percent of MasTec's shares.
The $33.8 million in payouts go back to earlier acquisitions and a price drop that saw shares go from the mid-$30s to
less than $10 in late 1998.
"These issues arose primarily from a significant decline in the value of the MasTec shares these managers received
between the time when we bought their businesses and the expiration of the period when they were restricted from sale
of the shares," MasTec's annual report states.
"Because neither these payments nor the agreements were contemplated, included or required under the original terms
of the business acquisitions and could not be attributed to future services, these payments were recorded as operating
expenses in 1998, rather than deferred or amortized. "
A Jan. 12 MasTec press release said the finalized agreements include multi-year employment agreements, 10-year
non-competition agreements and retention of the ownership stakes by the executives.
"Brokers I know say that the cash payment is something they've never seen before in their careers," said a researcher
for a broker/dealer in New Jersey who asked not to be named.
Officials at MasTec, which is in a quiet period before the earnings announcement, did not return phone calls.
MasTec settles suit going back to 1990
In a May report, technical analysts with HD Brous in Great Neck, N.Y., expressed concern that the employee payouts
could be exacerbated if the stock slid from its then lofty levels. That's because the potential remains for additional
payments to be made to existing management groups, newly acquired companies, or existing employees with stock
ownership or options.
"We believe this is a very poor reason for the payment of `signing' bonuses merely because the stock went down,"
Brous said in May. "MTZ has been a spectacular performer since that payment. Does this mean MTZ shareholders
can expect a refund on the cash paid?"
While several South Florida companies, including Citrix Systems and CyberCare, are the object of recent multiple
class action suits, none were listed against MasTec on news Web sites.
But MasTec has entered into a settlement regarding two shareholder class action and derivative suits first filed in 1990,
according to the annual report.
Two lawsuits filed in Delaware state court alleged "among other things, that various former fiduciaries of MasTec
breached their duties in approving certain transactions including the acquisition of control of the company in 1994 ...,"
the report says.
MasTec was not required to make any payments toward the settlement, which needed court approval, but another
defendant not named in the annual report is.
MasTec was formed by the 1994 merger of Burnup & Sims, a company founded in 1929, and Church & Tower,
which began in 1968 building phone networks in Miami and Puerto Rico.
Jorge Mas Canosa had been given half ownership in Church & Tower in 1969 for taking on management of it and had
bought out the remainder in 1971, according to a company profile on the Hoovers.com Web site. Mas was named
chairman of MasTec and Jorge Mas Jr. was named president and CEO.
The senior Mas, who was well known nationally for his leadership of the Cuban American National Foundation, died in
1997 and his son succeeded him as head of MasTec.
Another factor in HD Brous' initiation of a "sell" rating in May were questions about "the quality of MasTec's earnings,"
and its growth rate potential.
While a 20 percent climb is achievable, it's still well below the 40 percent growth experienced during 1999, wrote
Lucas Binder and Gary Goldstein in their research report for HD Brous.
"We no longer follow the company," Binder said last week. "[Its stock slide] speaks to what's in the initial [May]
report."
The analyst sees a scenario of build-out beginning to wane for cable installations and competition increasing for
installation of telecom systems.
Orius of West Palm Beach, a privately owned local competitor of MasTec and Dycom (NYSE: DY) that digs trenches
and lays cable, recently withdrew its scheduled $160 million June IPO.
Historically, most of MasTec's installation business has gone to BellSouth, though that number dwindled to 12 percent
of MasTec's business by year-end 1999.
HyPower among MasTec's competitors
BellSouth spokesman Mike Branigan said the the company's master contract with MasTec, which covers
Miami-Dade, Broward and parts of Palm Beach counties is still in place and good through 2003.
A large MasTec/BellSouth project in southern Broward County was just completed within the last 60 days, he said.
"The volume of work will vary, and there could be variations" in the length of projects, he said.
Richard Paul-Hus, vice president of business development for HyPower in Fort Lauderdale, says MasTec has all but
sown up BellSouth as a client with its master service agreement.
"MasTec does all the work for BellSouth," he said. HyPower focuses on building fiber for BellSouth competitors, such
as Florida East Coast Railways, FPL Fiber net and Nextlink.
Paul-Hus said even in that arena, MasTec is a competitor.
HyPower refocused its efforts toward the growing telecom infrastructure market that MasTec has dominated. It has a
local job along Hollywood Boulevard in southern Broward County.
All that aside, MasTec is expected to meet or exceed its profit target of 38 cents a share when it releases its second
quarter earnings next week.
Still, Binder said the future of business is all about who will make money and who won't. Many companies in the sector
have annual revenues less than $10 million and are targets to be acquired.
That's backed up by a recent study by Alex Brown showing MasTec, West Palm Beach's Dycom and Quanta
Services (NYSE: PWR) only have 5 percent of market share.
"It [infrastructure construction] is not that profitable a business," Binder said. "There's been a lot of consolidation
everyone is buying each other up."
E-mail Corporations writer John T. Fakler at jfakler@bizjournals.com.
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