URS Corporation - Is It Time?
During 2008, in the middle of economic good times, when 401(k) values were high and credit was easy, we began to ask ourselves how long the good times might last. About the middle of the year, we decided that the good times were in deed coming to an end, and wondered just what was going to happen not only to the economy, but also to our investments.
While we had no idea of the scope of the economic uncertainty that was descending on the economies of the world, we believed it was going to be long-lived, and the government would be required to do more than keep interest rates low if a recovery were ever to happen.
Accordingly, we increased the amount of cash in our portfolio by selling investments that were simply not performing as we had anticipated. While we were a bit reticent to take this course, we finally decided, after considerable discussion, that it was the wisest thing to do.
In past times of economic upheaval, one of the things the government seemed to do, aside from press for lower interest rates, was spend additional money, thus increasing the deficit and the national debt.
At that time in 2008, we believed that history would repeat itself and the government would once again attempt to stimulate the economy by spending money.
To that end, we investigated a number of companies, and ended up buying several companies that had contracts with the federal government. In the end, we added SAIC, Inc. (NYSE: SAI), Ducommun, Inc. (NYSE: DCO), SRA International, Inc. (NYSE: SRX), and Kaman Corporation (Nasdaq: KAMN) to our portfolio.
Once again, we believe that economic woe could be just ahead, as we simply do not believe the numbers about unemployment and housing the government is issuing. Nor do we believe that a sustainable economic recovery is at hand.
It is our opinion that the U.S. economy, like the economies of the rest of the world, are in far worse shape than is currently known. Accordingly, we are once again looking at companies that have contracts with the government, as a place to keep our investment dollars working.
One of the companies we looked at a couple of years ago was URS Corporation, (NYSE: URS), deciding at the time that we thought an investment in URS would be of little benefit.
But what about now, could an investment in URS be a benefit today?
Financial information related to URS Corporation, contained in this report, is based on the company’s most recent SEC Form 10-K filing, for year ending December 31, 2009, as filed with the Securities and Exchange Commission on March 2, 2010.
What They Do
The company is an international provider of engineering, construction and technical services, offering a broad range of program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to public agencies and private sector clients around the world.
The company is also a major United States federal government contractor in the areas of systems engineering and technical assistance, and operations and maintenance.
The company operates through three businesses: Infrastructure and Environment, Federal Services, and Energy and Construction.
The Infrastructure and Environment business provides a wide range of program management, planning, design, engineering, construction and construction management, and operations and maintenance services to a variety of U.S. and international government agencies and departments, as well as to private sector clients.
The company's Federal Services business provides program management, planning, systems engineering and technical assistance, construction and construction management, operations and maintenance, and decommissioning and closure services to U.S. federal government agencies, primarily the Departments of Defense and Homeland Security.
The company's Energy and Construction business provides program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to U.S. and international government agencies and departments, as well as to private sector clients.
The company has approximately 45,000 employees in a global network of offices and contract-specific job sites in more than 30 countries.
The stock is has been in a downtrend since early May, but is heading back to an overbought condition. Ideally, we would like to see the stock price in an oversold condition, with the MACD trending upward before we would consider a position.
However, we note that a recent close for the stock of $39.70 puts the price within 6% of support, and with first resistance at $44.12, there is an 11% increase potential from the recent close.
While we would be very tempted to start a position at current levels, recognizing of course, that the trend is your friend, we think the stock price may trend slightly lower from this point.
Long-Term (5 Year Hold) Investment
We have a number of metrics that we like to focus on when investigating a company for investment. No single metric stands alone, and none has more weight than another.
We note then, that the company’s Current Ratio at 1.88, and Cash Ratio at 0.49 are both what we consider to be less than investment quality, while the company’s Quick Ratio at 1.73 and Debt to Equity Ratio at 0.21 are above investment quality.
While we of course like that Free Cash Flow increased year over year, ending FY09 at $4.68 per share, we were simply not impressed that Goodwill and Intangibles once again made up more than 50% of Total Assets.
We were also not impressed that the company ended FY09 with debt in excess of $9.50 per share, which think is far too high. While the average interest rate the company paid was about 2% lower in FY09 than FY08, and the company did reduce its debt by almost $318 million during the year, we simply believe that the company needs to reduce its debt to something below $3.75 a share, if hopes to remain competitive over the longer-term.
Based on our preliminary review of the company’s FY09 financial information, we think a Reasonable Value Estimate for the stock is in the $70 to $75 per share range.
Accordingly, we think starting a position at current levels may be prudent, assuming investors are willing to add to that position on pullbacks in the price.
With the lone exception of spending money it doesn’t have, we believe the United States government is generally inept.
It is our opinion that the U.S. economy is in for another huge shock, and believe in typical government fashion, the current administration will simply try and spend its way into economic recovery.
The difference this time, as opposed to two years ago, is that this time we think the government will attempt to spend it’s way to prosperity by actually putting ordinary Americans to work, instead of bailing out all of their friends in the banking and financial services industry.
We believe putting ordinary Americans to work will be a good thing, just as we think taking advantage of the ineptitude of the people we elect by investing in companies that earn their money from the folly that has become American politics, will serve to lessen the pain when inflation eventually starts to consume our retirement dollars.
To download the URS Corporation Raw Value Worksheet, please click here.