The Company is a heavy civil contractor and a construction materials producer. It is engaged in the construction of highways, dams, airport infrastructure, mass transit facilities, real estate site development and other infrastructure related projects.
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With travelling, summer weather, and a none too clear picture of what Mr. Market is up to lately, I've been hard pressed to find any companies of serious (investable) interest of late. My Motley Fool subscriptions occasional bring some companies to my attention that I do additional analysis on, but overall, it's less than one in ten that I can get behind after a review. I seem to be more conservative than the teams with my valuations and limited investment funds. I made a play at Infrastructure stocks in January under the Obama enthusiasm for stimulus. Some have done well, but overall, it's clear the stimulus package is not getting doled out at the rate promised. The August Hidden Gems newsletter reminded me of Granite Construction. The 10% drop in the share price, shortly after adding it to my research list, helped it fit into my selection list. Hidden Gems reminder that construction money will be spent and that several companies are well positioned to receive it as well as highlighting that while dwindling, Granite has a decent pipeline to keep it busy until something breaks. The concern that states may not have infrastructure money of "thier own", or be able to issue bonds, (especially California) is offset by the condition of the nations infrasture and Granite's diversity with equipment, material sales, and actual work. Cash to debt is well in line, veteran leadership, diversified within the sector, stimulus projects that are funded, etc. Management does warn that bidding, especially in the Western division will be very competitive, but believes they will do better than usual with Granite East. Though margins are a little lower than I would like, I believe Granite is priced well within an acceptable risk/reward level.
I like your pitch, but I don't think GVA will turn around, until their operating cash flow is once again positive. I like the fact that they are still retiring stock and debt, even though their cash flow currently doesn't allow it.
Most construction companies are tough calls, Granite with a piece of Real Estate in their blood is even tougher. I think the key is the stimulus money. It appears the projects that are "shovel ready" is NOT being followed. Many states have a large percent of the stimulus money still under lock and key. Granite is getting enough contracts to stay ahead, but more would be helpful. Their ability to get materials at lower cost than most construction companies and thier US diversification will help them eventually although I won't gues right now how long that will take. We'll get a better idea on October 28th after hours. Overall, I don't mind losing CAPs points on a pick. It gives me a reminder to check in on them from time to time and if my thesis is still solid then possibly a real life investment. I'd be close to pulling the trigger on it at this pirce. Thanks and good luck!