Jack McKay sends: Perini Corporation (PCR) is a construction company. Perini works with both private clients and public agencies on complex construction projects. Perini is known for their projects in the hospitality and gambling industry, sports and entertainment, education, transportation, corrections, healthcare, pharmaceutical, and large construction projects for U.S. military and government agencies. Shares have traded between $25 and $75 over the past year, and currently trade for $34.21.

Operations
Perini just released their 4Q 2007 report. The company’s backlog of uncompleted construction work at the end of 2007 was $7.6B, down from $8.5B at the end of 2006. During 4Q 2007, Perini worked through $1.2B of backlog, and added $1.0B of new contract awards. $281M of this was from the hospitality and gaming market in Las Vegas, Nevada, and Maryland. $497M of awards were from the office and industrial building and healthcare markets. $230M of civil work was added to the backlog from a contract award for a mass transit project in New York City and for a roadway project in Maryland. Perini Management Services (the construction management segment) was awarded an Air Force contract - the company was selected to be one of ten contractors to participate in a 10 year, $4B program.

$1.4B of Perini’s current backlog is related to the Cosmopolitan Resort under construction on the Las Vegas strip. The 4Q 2007 conference call provided new information that has lessened concern over the continuation of funding of the resort. Cosmopolitan is still owned by the same owner, but Hyatt Resorts is in the process of acquiring the property. Construction on the project should go on without a hitch. Perini also has a three-month payment guarantee from Deutsche Bank.

The CityCenter Las Vegas Project is the single largest backlog item ($2B remaining on the project). Perini will learn soon whether the company has been awarded the (potentially multi-billion dollar) CityCenter Atlantic City Project. There is one other competitor. Perini will also learn sometime shortly after that whether the company has won the Kerzner Casino Resort project. There are no other competing bids for this project.

For the above reasons, management was confident on the 4Q 2007 conference call regarding their position in gaming construction market. Also, management was confident about developments in the healthcare and education facility markets in certain areas of the US.

Financials
At the end of 2007, Perini has $459M in cash with only $15M debt. At the end of 2006, Perini had only $226M cash with $34M debt. Income over 2007 was $97M, while cash flow from operations for 2007 was approximately $270M, while free cash flow was approximately $240M. Revenue growth has been tremendous - sales have grown from $1.73B in 2005 to $3.04B in 2006 to $4.63B in 2007.

With market cap of just $930M, Perini’s enterprise value is $482M. That figure puts Perini’s trailing earnings multiple under 5x, and Perini’s trailing free cash flow multiple under 2x.

Conclusion
Perini’s shares have decreased from a high of $75 this year to their current price at $34.21. However, their core markets of hospitality/gambling and healthcare and education are still strong. While a recession may hit spending in these areas, Perini’s near term opportunities - two significant casino resort projects could add billions to the backlog - show that demand continues for Perini’s services. Revenue growth may not be quite as impressive as in the previous several years, but analysts expect sales to grow to $5.14B in 2008.

Fortunately for investors, new money can purchase Perini shares at homebuilder prices. Perini’s earnings are expected to grow modestly over the next couple of years, yet its earnings multiple is under 5x. From a cash flow perspective, Perini is less than eight quarters away from raising its total cash level to its current market cap, assuming the current (annual) free cash flow rate. Cash flow is more unpredictable than earnings, but Perini’s cash flow typically outpaces earnings. Cash flow should be as impressive as or more impressive than 2007 levels as earnings remain steady or grow slightly. Perini Corporation is a strong buy.

Key Stats:
Market Cap: $930 M
Cash: $459 M
Trailing Operating Cash Flow: $270 M
Trailing Free Cash Flow: $240 M
Trailing Earnings: $97 M

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Disclosure: I own shares of Perini.