MYR Group has demonstrated consistent contract revenue growth over the past three years, despite experiencing slight margin contractions.
As a leading specialty contractor in the US and Canada, operating in the commercial, industrial, and electric utility infrastructure sectors, MYRG is well-positioned to benefit from the ongoing shift in energy generation and the increasing demand for data centers.
Historical Financial Analysis
MYRG operates in two primary segments: Transmission and Distribution (T&D) and Commercial and Industrial (C&I). Over the past three years, MYRG’s contract revenue has shown consistent growth. In 2021, the company reported contract revenue of approximately $2.498 billion, which increased to $3.008 billion in 2022, representing a year-over-year growth rate of 20.4%.
This growth was driven by increases in transmission projects, distribution projects, and the C&I segment.
In 2023, MYRG’s contract revenue grew further to approximately $3.643 billion, a year-over-year growth of 21.1%. The strong double-digit growth continued to be fueled by increases in revenue from transmission projects, distribution projects, and the C&I segment.
However, the company’s margins have faced slight pressure over this period. The gross profit margin contracted from 11.40% in 2022 to 10% in 2023, primarily due to rising costs caused by supply chain issues, inflation, and inclement weather.
Consequently, the income from operations margin contracted from 3.80% in 2022 to 3.50% in 2023, and the net income margin decreased from 2.80% to 2.50%.
First Quarter 2024 Earnings Analysis
MYRG announced its first-quarter 2024 results on May 1, 2024. The company’s contract revenues grew by 0.5% year-over-year to $815.6 million, driven by an increase in the T&D segment, partially offset by declines in the C&I segment.
The T&D segment’s revenue increased by $45.1 million, while the C&I segment’s revenue fell by $41.1 million due to project delays.
Profitability margins remained relatively robust year-over-year, with a slight expansion in the gross profit margin from 10.40% to 10.60% due to favorable joint venture results. However, income from operations margin contracted slightly from 3.40% to 3% due to rising SG&A expenses, which increased from 7% to 7.6% of contract revenue.
Additionally, the net income margin contracted from 2.90% to 2.30%, and the EBITDA margin decreased from 5.10% to 4.90%.
Business Overview
MYRG operates through its T&D and C&I segments. The T&D segment serves the electric utility industry, offering a range of services for electric transmission, distribution networks, and substation facilities.
The C&I segment provides services such as the design, installation, maintenance, and repair of commercial and industrial wiring, as well as intelligent transportation systems, roadway lighting, signalization, and electric vehicle charging infrastructure.
Shift Towards Clean Energy
The shift in the energy generation mix in the US and Canada, with traditional baseload generation resources being replaced by clean energy, is expected to bolster MYRG’s outlook.
The utility-scale solar segment, after facing a downturn in 2022, rebounded in 2023 with a 77% increase in installed capacity. This trend is expected to continue, providing tailwinds for MYRG.
Additionally, the growing demand for data centers is significantly increasing electricity demand in the US. More than 250 hyperscale and co-location data centers are planned, further driving demand for MYRG’s services.
Both the T&D and C&I segments have the experience and expertise to support this growth, strengthening MYRG’s outlook.
Relative Valuation Model
Compared to its peers, MYRG’s forward revenue growth rate is 9.67%, slightly below the median of 11.76%. Its EBITDA margin TTM is 5%, lower than the peers’ median of 8.14%, and its net income margin TTM is 2.38%, also below the peers’ median of 3.57%.
Currently, MYRG’s forward non-GAAP P/E ratio is 27.16x, higher than the peers’ median of 23.28x. Given MYRG’s slight underperformance, a target P/E of ~22.12x is more appropriate.
Risk and Conclusion
MYRG’s reliance on fixed-price and unit-price contracts introduces risks related to forecasting project costs accurately. Unexpected increases in labor and material costs can impact profitability.
Additionally, the shift towards renewable energy and the growing demand for data centers are positive for MYRG’s outlook, but external factors such as supply chain disruptions and regulatory changes could pose challenges.
Overall, MYRG has demonstrated strong top-line growth, and while its profitability margins have contracted slightly, the company’s positive growth outlook and potential for upside make it an attractive investment.
Based on this analysis, MYRG is well-positioned to benefit from the ongoing shift toward clean energy and the growing demand for data centers.
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