Tetra Tech is taking advantage of the strong U.S. dollar to buy overseas assets.
An ESG play for your portfolio
Lee Samaha (Tetra Tech): The leading water and environmental consulting and services company’s stock is down more than 21% this year, but its growth prospects are going up. For starters, management has hiked its full-year revenue guidance from $2.65 billion to $2.80 billion to a new range of $2.78 billion to $2.83 billion. Moreover, its backlog going into the third quarter was around $3.65 billion. It speaks to the company's favorable position in helping governments and corporations with technical solutions for their water management and environmental programs.
Furthermore, the strength of the U.S. dollar has created an opportunity for Tetra Tech to follow up on its 2019 acquisition of the UK’s WYG (consulting and engineering services) with a much larger (around $720 million) acquisition of another U.K. company, RPS. The deal will expand Tetra Tech’s geographic reach and its exposure to renewable energy and environmental management.
In addition, given that around 60% of Tetra Tech’s revenue traditionally comes from its government services group (GSG), primarily selling to U.S. government and worldwide development agencies, it’s fair to say it has earnings resiliency in a downturn. Its remaining revenue comes from its commercial/international services group (CIG) but given ever-increasing regulatory requirements around the environment and water, in particular, its CIG also has a degree of resiliency about it.
There’s little doubt that Tetra Tech is boosting its already attractive growth prospects by acquiring RPS, and that’s exactly what you would hope a company to do in a stock market downturn. Not least from a company in a long-term growth industry.
