URS Corp. knows the rebuilding in the U.S. has just begun

Posted Jun 5th 2009 4:50PM by Joseph Lazzaro
Filed under: Stocks to Buy

Put planning/construction management company URS Corp. (NYSE: URS) in that category of companies that have been rudely treated by Wall Street. From the way, institutions dumped the stock in October 2008, one would think that the United States would not build or repair another electric or water system or build another public facility. From a high over $60, the Street hammered shares to a low around $20. Or, as a CEO friend of mine says when he sees irrational behavior in a corporate environment, "It was a totally unacceptable thought process."

Wall Street's fits-and-starts continued over the winter, hence a Buy rating was delayed here regarding URS until it cleared the $50 mark, and now that the psychologically important "5-0" has been breached, look for shares to continue their upward movement.

Further, the trend is higher because the pullback in industrial and commerce power projects should bottom in the quarters ahead, and that fact, combined with a lack of project cancellation by state and local governments, and new federal projects, should convince institutional investors that URS's revenue growth will continue.

In short, URS will benefit from FY2010 fiscal stimulus infrastructure spending, and greater commitments from the private sector. The company's adequate cost controls, combined with lower bid/proposal costs, adds to the stock's appeal, and while the P/E of 16 is not low, it's reasonable given the company's growth prospects. The First Call FY2009/FY2010 EPS estimates for URS are $3.02 to $3.35.

The risks include an about-face by the U.S. Congress on infrastructure spending beyond FY2010. The view from here argues the Democratic Party will be in charge, so a reversal isn't likely.

Stock Analysis: URS Corp is a moderate-risk stock. Consider buying a 25% position in URS now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your URS position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $22.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: URS, URS Corp