On Wednesday, Baird adjusted its price target for MYR Group (NASDAQ:MYRG), a company specializing in electrical construction services, to $131.00, down from the previous $143.00. Despite the reduction, the firm maintained its Outperform rating on the stock.
The revision follows the latest management commentary from MYR Group's second-quarter 2024 earnings call, which highlighted ongoing challenges due to low-margin clean energy projects that are expected to continue through the second half of the year.
The company's management indicated that transmission and distribution (T&D) margins are currently near the midpoint of the targeted range of approximately 7-10%, not accounting for the gross margin drag from solar projects under pressure, which constituted around 15% of T&D revenue in the first half of 2024. These projects are anticipated to persist in affecting margins until their completion later in the year.
Additionally, a significant commercial and industrial (C&I) solar project that impacted the second quarter's margins is projected to continue affecting C&I margins in the third quarter and, to a lesser extent, in the fourth quarter of 2024. Baird also factored in an assumed modest increase in the tax rate, aligning with the historical annual average rates of roughly 27-28%.
The updated estimates by Baird reflect a reassessment of MYR Group's financial outlook, taking into account the specific operational challenges mentioned by the company's management. The firm's Outperform rating suggests that, despite the near-term margin pressures, Baird continues to view MYR Group's stock favorably in the longer term.
In other recent news, MYR Group Inc. reported a $60 million decrease in revenues in its second quarter of 2024 earnings call, attributed mainly to underperformance in clean energy projects within the Transmission and Distribution (T&D) segment and issues in a Commercial and Industrial (C&I) project.
Despite the revenue dip, MYR Group secured a $170 million transportation project in Canada in the C&I segment. The company also won several Master Service Agreements for work in the T&D segment.
While acknowledging challenges such as potential litigation for a C&I project and selective solar work in the T&D segment, MYR Group expressed optimism about the resolution of these issues and the overall growth prospects. The company anticipates growth in the C&I segment, driven by new projects and demand for data centers, while expecting a decline in T&D segment revenue due to selectivity in solar work.
These are recent developments for MYR Group, which despite current project challenges, continues to maintain a strong market position and is committed to meeting customer needs and leveraging the increasing demand in their core markets.
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