What are we looking for?
Since SNC-Lavalin Group Inc. recently announced they are acquiring international oil and gas services company Kentz Corp. Ltd. for more than $2-billion, my colleague Rob Belanger and I thought we would take a closer look at the engineering and construction sector.
We started with North American companies greater than $500-million in market capitalization.
The price-to-cash-flow ratio (P/CF) compares the value of different companies. It represents the amount an investor is willing to pay for a dollar generated from a company’s operations. A low number is preferred.
Price-to-book (P/B) is a ratio used to compare a stock’s market value to its book value. A low P/B means the company could be undervalued.
The forward 12-month price-to-earnings ratio is a measure of P/E using consensus estimates of forecasted earnings. We are looking for a low number.
Interest coverage (earnings before interest and taxes, or EBIT, divided by interest expense) is used to determine how easily a company can pay interest on its outstanding debt. The lower the ratio, the more the company is burdened by debt expense.
Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Only companies with a positive ROA are included.
Return on equity (ROE) shows whether a company is a profit creator or a profit burner, and if it is growing profits without pouring new capital into the business. Companies had to have a positive ROE and our list is sorted by this metric.
We are also showing the number of analysts who have “buy” recommendations on the company compared to the total number of analysts who follow the company.
What did we find?
Only one company, MYR Group Inc., scored better than the averages in all six categories. The company is a specialty electrical contracting firm operating in North America.
Three companies scored better than the averages in five categories. Fluor Corp. and Jacob’s Engineering Group Inc. are two of the world’s largest publicly traded engineering and construction companies, and Quanta Services Inc. specializes in electrical power and the oil and gas industry.
Consult an investment professional or conduct further research before investing in any of these companies.