Great Lakes Dredge & Dock’s (GLDD) earnings announcement had its stock down nearly 14% today. Yet while the revenues of $117.2 million reported for Q3 came in well below the $134.2 million consensus estimate, this was consistent with the company’s expectations for it to be a tough period due to two of its vessels expected to undergo their regulatory drydockings and the idling of some equipment due to market delays from 2022 and the first half of 2023.

That’s why the focus should be on how well GLDD was able to manage its costs in such an environment. The good news is, improved project performance and the benefits of its cost-cutting initiatives helped the company grow its adjusted EBITDA to $5.3 million from just $1.3 million in Q2 of 2022 and limit its adjusted net loss to just 9 cents per share, which was a marked improvement from the 15 cents it lost in the prior-year period and 3 cents better than the 12-cent loss analysts were expecting.

This improved profit performance should serve the company well as it begins to convert more of its burgeoning backlog. Indeed, the latter grew to $1.030 billion and $1.255 billion (including $225.0 million in low bids and options pending award) from just $434.6 million and $921.9 million at the end of Q2 thanks to the persistence of strong bidding activity and GLDD’s ability to win its share of these contracts. This includes adding $519.7 million in higher-margin capital projects, which now comprise 71.2% of the company’s total backlog. And with GLDD expecting current budgeted appropriations to support the funding of several previously delayed capital port improvement projects that are still expected to come up for bid before the end of 2023, and the proposed 2024 budget for the U.S. Army Corps of Engineers indicating that the Harbor Maintenance Trust Fund to maintain and modernize the nation’s waterways will be materially higher than the $2.32 billion provided this year, its backlog should continue to grow in the periods ahead.

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When you combine this with the fact that GLDD sees utilization greatly increase in the current quarter from Q3—as most of the non-cold stacked vessels are scheduled to work and there are no planned drydockings—and also expects a larger amount of revenue coming from capital and beach projects, which typically come with higher margins than maintenance projects, I believe revenue and earnings performance in Q4 will be the strongest GLDD has enjoyed in seven quarters and portend even better growth in 2024. This has me seeing today’s selloff as very short-sighted and as having created an even better buying opportunity in the stock.


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