UPDATE: Global Hunter Securities Upgrades Tetra Tech (TTEK) to Buy

(Updated - November 18, 2014 9:51 AM EST)

Global Hunter Securities upgraded Tetra Tech (NASDAQ: TTEK) from Accumulate to Buy with a price target of $31.00.

Analyst Michael Shlisk said, "TTEK's FQ4 EPS of $0.35 was above both our estimate of $0.34 and consensus of $0.34; guidance for the quarter was $0.30-$0.40. That said, results were messy; EPS was supported by $0.29 of purchase accounting benefits, but also included substantial losses in the RCM segment ($0.35) as TTEK restructures and exits this business. Importantly, the core continuing TSS/ECS segments generated operating margins of 12.8% vs. 11.3% a year ago. FY15 guidance calls for EPS of $1.55-$1.75 on revenues of $1.75B-$1.95B. The continuing segments are expected to generate EBITDA margins of 12%-13%, vs. the full company's 11.1% in FY14."

"That said, the higher margins are expected to be accompanied by reduced contract risk; management expects its portfolio to be 30% fixed-price going forward, from an estimated 40% in prior years. In addition, management announced a two-year, $200MM share repurchase program as the prior $100MM program was completed; this program could have more than $0.20 of annualized EPS impact once complete and is not included in guidance. While we do expect seasonality in earnings (FQ1:15 EPS is expected to decline YoY on tough comps), with much of the RCM headwinds in the rear-view mirror, the path to increased profitability with lower risk is much clearer, in our view. As with most stocks we recommend in E&C, we believe TTEK is best suited for long-term investors willing to tolerate quarter-to-quarter volatility," added the analyst.

For an analyst ratings summary and ratings history on Tetra Tech click here. For more ratings news on Tetra Tech click here.

Shares of Tetra Tech closed at $26.92 yesterday.

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