Real Money’s Jonathan Heller is busy running portfolio screens and he’s homing in on construction heavyweight Tutor Perini (TPC) - Get Tutor Perini Corporation Report. He’s calling it an “interesting situation.”
“Tutor Perini, which is a member of my 2021 Double Net Value Portfolio, has seen its valuation go to a new level,” Heller wrote recently on Real Money. “The construction company's shares are flat year to date and it now is a "net/net," trading below net current asset value.”
It’s been a while since Heller has written about net/nets due to their scarcity, so he provided Real Money readers a mini-refresher.
“A "net/net" is a company trading below its net current asset value, or NCAV, which is calculated by subtracting total liabilities from current assets,” he said. “The designation is based on a technique developed by Benjamin Graham many years ago, although his criteria for investment were more stringent. Graham would only consider stocks trading at less than 2/3 NCAV, but for the 20-plus years I've been researching, writing about and investing in net/net, I've used the more relaxed methodology.”
Heller notes the calculation ignores non-current assets in the calculation; a buyer is theoretically getting these for free. "Theoretically," however, is the operative word. Net/nets are often the proverbial "dog with fleas" of the investment world,” he said.
With a $663 million market cap, Tutor Perini is the largest net/net Heller’s seen “in ages” and its shares currently trade at 0.96 X NCAV. Tutor Perini ended its latest 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'd rather see more cash and short-term investments, but beggars can't be choosers,” Heller added.
Tutor Perini currently trades at just under 6x trailing earnings per share and less than 6x next year's consensus estimates. “While there are just three analysts weighing in, that's actually not a bad number for a net/net -- most are so small that they garner no coverage,” Heller said. “Thus, hope springs eternal for Tutor Perini. It’s been quite volatile amid speculation that it might benefit from infrastructure spending, if that ever happens.”