GeoInvesting believes that if TRC Companies Inc. (TRR) can begin to grow its top line on a consistent basis and bring its gross margins of 16% more to near 36%, a figure more in line with comparable companies NV5 Holdings, Inc. (NVEE) and Willdan Group, Inc. (WLDN), we could see significant improvement in profitability and a notable increase in TRR’s share price.

Sometimes the best opportunities are present in under-performing companies that are about to turn the corner. We actually came across TRR, an engineering and construction management company, during our due diligence on GeoBargain NVEE.  We mentioned that TRR was an under-performer compared to its most relevant comparable competitors in this industry.  But, we still believe the story is worth tracking.

Management’s Outlook and Accretive Acquisition Sparks GeoInvesting’s Interest

In our 11/4/2014 email we stated we would begin to track TRR due to management commentary, combined with the completion of an accretive acquisition.  The reasons for tracking this company are listed below…

  • As we mentioned in our GeoBargain NVEE article, industry dynamics in the engineering consultant industry are strong.
    • There is an immediate need to upgrade the decaying U.S. infrastructure in public and private sectors.
    • There is a related need to fill the increase in human resource demand.
  • Numerous acquisition opportunities are present in this fragmented industry.  TRR has begun to take advantage of this situation as referenced by the recent acquisitions of Covino Environmental Associates  and NOVA Safety and Enviromental within the last 7 months.
  • Acquisition strategy has helped fuel the growth and share prices of the two most relevant publicly traded comparables, NVEE and WLDN.

The following commentary from management indicates the company is about to enter into a period of near term growth.

“TRC continues to see solid growth opportunities in each of our segments. Our diversified business model is delivering increased profitability and growth. We have a strong balance sheet to support our growth initiatives, including ongoing organic investments and strategic acquisitions. We are encouraged about our outlook for the second half of fiscal 2015 and our long-term growth,” concluded Vincze.”

Caveats:

  • We have not interviewed management to learn more about the growth initiatives and if its plans could lead to expanding gross margins to that of its industry comparables.   We will provide an update as soon as possible.

 


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