Integrated Electrical Services Corporation
Who is IESC?
Integrated Electrical Services, Inc. is a holding company based out of Houston, TX, founded in 1997, that owns and manages subsidiaries operating across a variety of end markets. Operations are currently organized into four principal business segments, based upon the nature of its current services:
Four key segments:
Communications - Nationwide provider of products and
services for mission critical infrastructure, such as data centers,
of large corporations. This is the fastest growing segment within the company (sales grew 28% year-over-year).
Residential - Regional provider of electrical installation
services for single family housing and multi-family apartment
Commercial & Industrial - Provider of electrical
design, construction, and maintenance services to the commercial and
industrial markets in various regional markets and nationwide in certain areas of expertise
Infrastructure Solutions - Provider of services to industrial and rail customers, and electrical and mechanical solutions to domestic and international customers
Why do you like the stock?
In short, the company has been turnaround story that actually appears to be turning around based off its financial performance over the last few years. I like their commitment to accretive acquisitions and rollups into their larger operating units, while still allowing the acquired companies to operate as though they were independent. It reminds me of Berkshire Hathaway’s business model, except in the electrical services industry.
There is a majority shareholder who controls 62% of the shares, but I am fine with that, considering that the company was in a highly dysfunctional state coming out of the housing crisis, and the majority shareholder was actually able to right the ship once they came on board in 2011.
I would also argue that the company is now a growth story that is not being fully appreciated by the market. ROE and ROIC > 16% over the last two years while maintaining a low-debt profile supports this growth claim.
Additionally, the company is still small, with a market cap of $250M, while having $430M worth of net operating loss carryforwards which allow it to retain greater amounts of dollars that it earns.
How is their business condition?
$550 million in revenue as of LTM 6/30/15
$45 million of cash on balance sheet as of 6/30/15
$459 million federal tax net operating loss carryforwards (NOLs) as of 9/30/14
60+ branch locations across the U.S. with 2,700+ employees
Selected financial data:
2014 2015 TTM
0.29 0.77 0.88
Gross Margin %
16.2 17.4 17.8
7.0 17.3 19.0
7.3 16.7 18.3
To summarize, this company is very small, so there is risk, but they operate in a dull-normal industry, and are establishing a track record of posting solid business growth through their initiatives that were set forth in 2011. At 15x ttm earnings, current share price is not too frothy either.