Tuesday, September 15, 2015

TRC Companies: an Unexpected Beneficiary of the Clean Power Plan

The last post identified a company that could be a direct beneficiary of the Clean Power Plan of the U.S. Environmental Protection Agency.  The plan is aimed at reducing carbon emissions from U.S. power generation facilities.  Each state has to meet a set of standards set by the EPA based that state’s particular circumstances in electrical generation.  The carbon pollution limits begin in 2022 and ramp to full effect by 2030.

Power generators are expected to implement efficiency technologies to boost the power-to-carbon ratio of fossil fuel powered facilities as well as invest in new renewable fuel power plants.  All of that takes planning, designing and engineering.  It is logical then to draw a line from the Clean Power Plan to companies providing technical solutions to the power industry.

One of the most recent additions to the Crystal Equity Research coverage universe is TRC Companies (TRR:  NYSE), which provides engineering and consulting management services to builders and owners of complex environmental, energy and infrastructure projects.  The company is able to work on projects that are beyond the skills and capabilities of other engineering firms, such as contaminated site clean-up, environmental risk transfers, energy generation, start-up and decommissioning, environmental permitting, climate change impact assessment, among other multifaceted tasks.  Typical target markets include transportation infrastructure, energy generation, building structures and utilities, among others.

Granted the power generation industry is more sideline than focus for TRC.  The company does provide air pollution control system engineering to utilities and cites its work for the Guam Power Authority as an example of TRC’s capacities to solve difficult environmental compliance problems.  The company also has extensive experience in planning, designing, constructing, and permitting utility-scale renewable energy projects.  Their experience includes hydropower, wind and solar.  They have even worked on a tidal power project.  If utilities decide to beef up renewable energy sources, TRC could jump to the head of the line to offer engineering and consulting services.       

TRC Companies has grown through a combination of acquisitions and capture of market share.  The most recent acquisition of X-Line added distributed engineering and design capacity in the power industry.  The deal expands TRC’s market presence in the southeastern region of the U.S. and adds valuable relationships to the customer base.  The transaction is expected to be accretive to earnings in the first fiscal quarter ending September 2016.  Long-term the X-Line relationships and experience could help TRC expand into neighboring power generation markets.

TRC Companies has become more visible to investors as well as potential customers.  The Company has reached the half billion level in annual sales, an achievement which we believe has put the stock on the radar of more investors.   The stock has already experienced increased trading volume and new institutional ownership. 

The most recent quarter financial report has helped ignite investor interest.  TRC Companies reported total sales of $114.6 million in the June 2015 quarter, representing a 21% increase over the same quarter last year.  Earnings growth was even more impressive, with earnings reaching $0.22 per share compared to $0.17 in the prior year quarter.  Sales growth was driven by rising demand for all three of the Company’s service segments:  environmental, energy and infrastructure.  However, the environmental segment delivered the strongest growth with sales increasing 28% year-over-year.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research has issued a Technical Buy rating on TRR.

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