In the November 2015 issue of the SmallCap Informer newsletter published by ICLUBcentral Inc., we profiled NV5 Holdings (NVEE), a provider of technical engineering and consulting services. There seem to be a number of positive factors which could drive the company forward in both the near- and long-term.

About the Company

NV5 Holdings provides technical engineering and consulting solutions for public and private sector clients in a variety of markets, including infrastructure, construction, real estate, and environmental. The company primarily focuses on five business verticals: construction quality assurance, infrastructure, energy, program management, and environmental. NV5 operates 42 offices in 15 states.
Some of the high-level project and customers of NV5 include Qualcomm Stadium, Rose Bowl Stadium, Citizen’s Bank Park, Princeton University Football Stadium, Philadelphia Intl. Airport, Ft. Lauderdale Intl. Airport, Miami Intl. Airport, Newark Intl. Airport, City of Colorado Springs, Florida Power & Light, and San Diego Gas & Electric. The company is ranked 124 out of the top 500 design firms and 69 out of top construction management firms by the ENR (Engineering New Record).

NV5’s roots go back to a business that was founded in 1949, but the company in its present form went public in 2013.

Growth Analysis

Since 2011, the company has grown revenues 18.9% on average each year, with EPS up an average 28.2% during the same period. In NV5’s fiscal third quarter ended September 30, 2015, revenues were up 55.0% to $48.7 million from $31.4 million in the year-ago quarter. EPS were up 23.5% to $0.38 from $0.31 in 3Q 2014.

Many of NV5’s verticals cover areas of growing demand, such as repairing or replacing highway and bridge infrastructure. According to the American Society of Civil Engineers, approximately $3.6 trillion in public investments will be required to improve the existing condition of our nation’s roads and bridges through 2030. The U.S. Department of Transportation estimates that government and state agencies will need to allocate between $65.3 and $86.3 billion annually to infrastructure maintenance to merely preserve existing conditions.

The company does make acquisitions from time to time. Another source of growing revenues is a focus on cross-selling services across its five core service lines. In November 2015, NV5 announced that it had contracted $2 million in fees from its cross-selling efforts. In the past, these contracts could have gone to other firms or sub-contractors.

In its third quarter earnings report, management raised its guidance for full-year 2015 revenues and diluted EPS. The company expects full-year 2015 gross revenues to range from $155 million to $162 million, which represents an increase of 50% from 2014 gross revenues of $108.4 million. The company further expects that full-year 2015 EPS will range from $1.09 per share to $1.19 per share, representing an increase of 37% over EPS of $0.87 for 2014. Included in the guidance is the impact by the addition of 1.6 million shares issued from its secondary offering in May 2015.

We believe that the company can support 18% revenue and EPS growth in the next five years. The long-term consensus for EPS growth among Wall Street analysts is 20%. We note that NV5’s industry group, Engineering and Construction, is traditionally economically sensitive and thus subject to downturns in the event of a recession, however the Value Line Investment Survey gives NV5 top marks for timeliness. Growth over the next one to three years is likely to be higher than 20%.

Quality Analysis

NV5’s pre-tax margins have been steadily climbing, from 1.6% in 2010 to 7.4% in 2014. According to StockCentral.com, the weighted average margin for all companies in the Engineering and Construction industry is 4.3%.
In May, NV5 completed a $32.1 million underwritten public offering of 1,644,500 shares of its common stock. The company intends to use the net proceeds of the offering for general corporate purposes, which may include paying for possible acquisitions or the expansion of its business and providing working capital. The new shares are included in the calculation of dilution in the current financial statements.
As of the end of fiscal 2014, the company had long-term debt equivalent to 10.3% of total equity.

Valuation Analysis

At its current price of $21.33, NVEE’s P/E ratio is 20.2, much higher than the multiples of the last two years since going public. However, we note that in the last 52 weeks the P/E ratio has been much higher. As the company matures and more investors discover NV5’s growth story, we expect that its signature P/E will increase. We see 25 as a reasonable high P/E for the stock, which would result in a forecast high price of $60.50 in five years if our $2.42 EPS target is reached. On the downside, our low P/E is 9.4; multiply that by TTM EPS of $1.06 and a forecast low price of $10.00 results. With these assumptions in place, the stock is a buy up to $22.60, and the current price provides a 3.5:1 upside/downside ratio with the chance of a 23.2% annual total return through 2019.



NV5 Holdings, Inc. trades on the NASDAQ with the symbol NVEE. The company pays no dividends.

For More Information

Lauren Wright, Ph.D.
Director of Investor Relations
NV5 Holdings, Inc.
E-mail: IR@NV5.com
Phone: (408) 392-7233
Web: www.nv5.com

NVEE-SCInformer-20151129.ITK (3kb) downloaded 2 time(s).

Edited by user Monday, December 14, 2015 11:40:38 AM(UTC)  | Reason: Not specified