Guardian Perini sees her assessment go old-fashioned as she slips into the ‘net / net’ dirt
While many of my deeper value screens reveal little about the candidates’ path these days, I spent my screens this weekend and found some interesting situations.
The construction name Tutor Perini (TPC), which is a member of my 2021 Double Net Value portfolio, has seen its valuation reach a new level. The construction company’s shares have been stable since the start of the year and it is now a “net / net”, trading below the current net asset value. It’s been a while since I wrote about net / net due to their scarcity, so here’s a quick reminder: A “net / net” is a company that trades below its current net asset value, or NCAV, which is calculated by subtracting total liabilities from current assets. The designation is based on a technique developed by Benjamin Graham many years ago, although his investment criteria are more stringent. Graham would only consider stocks trading below 2/3 NCAV, but in over 20 years of researching, writing, and investing in the net / net, I have used the most relaxed methodology.
The calculation ignores non-current assets in the calculation; a buyer gets them theoretically for free. “Theoretically”, however, is the key word. Nets / nets are often the proverbial “flea dog” of the investment world.
With a market cap of $ 663 million, Tutor Perini is the biggest net / net I’ve seen in ages and its shares are currently trading at 0.96X NCAV. Tutor Perini ended its final quarter with $ 231 million in cash and $ 970 million in debt. The bulk of its current assets, $ 3.4 billion, are receivables; in terms of net / net asset quality, i would rather see more cash and short term investment, but beggars can’t choose.
Tutor Perini is currently trading at just under 6 times rolling earnings per share and less than 6 times next year’s consensus estimates. Although there are only three analysts involved, this is actually not a bad number for a net / net. Most are so small that they are not covered.
Hope is eternal for tutor Perini. It has been quite volatile amid speculation it could benefit from infrastructure spending, should it ever happen.
I will keep another discovery for my next column; it falls under the category “o, how the mighty fell”, and I don’t even know what to think about it at this point.
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