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  • Taken from MarketWatch: Tetra Tech, Inc.'s Quarterly Financials
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    Net Income

    Before and during the wind-down of the Restructuring and Construction Management, extraordinary expenses were more frequent and caused substantial changes in non-core operations of the company. The continuous increase in net income from $76.8 million to $104 million in 2010-2012 was cut short as it plunged to -$2.1 million in 2013. The sharp change happened when the wind-down started. It considerably increased to $108 million a year after before decreasing again to $39 million in 2015. Since then, income growth has resumed. From $84 million in 2016, it continuously increased to $160 million in 2019. The smoother upward trend of both the operating revenue and net income for the last five years showed consistency and efficiency in both core and non-core operations. Also, it further confirmed the observation that the wind-down was advantageous for the company as its viability increased further.

    Meanwhile, FY 2020 showed increased efficiency even in non-core operations. 1Q 2020 had a higher net income at $47 million compared to $42 million in the previous fiscal year since the pandemic has not entered the US yet then. As it hit the industries in 2Q and 3Q, it increased the unusual charges. But since the company maintained its strong operations, it handled both its core and non-core operations efficiently. With this, Profit Before Tax during the two quarters was also higher than their comparative quarters in 2019. But since tax drastically increased, especially in 3Q, net income fell but remained high at $36 million and $46 million, respectively. Moreover, as the company already adjusted to the situation it kept the revenue within the range while increasing efficiency which caused the increase in operating income. Also, its non-core operations did not have substantial changes. As a result, it dramatically increased to $45 million. It was the highest value in 4Q since 2017-2019 at $35 million, $29 million, and $12 million, respectively. With this, net income as FY 2020 ended went higher to $174 million which showed an 8% increase. Now that everything is slowly adapting to the situation and the operations get better, the efficiency may improve as well. As estimated, net income may reach $195 million in FY 2021 and even higher at $276 million in 2025.

    Taken from MarketWatch: Annual Financials

    Taken from MarketWatch: Quarterly Financials

    Return on Asset

    Since Tetra Tech, Inc. Operates by providing consulting and engineering services, intangibles, fixed assets, cash, and receivables comprise its assets. The changes in the trend of the company's operations can be verified in the Balance Sheet to ensure consistency. The trend of assets has been identical to the operating revenue and similar to net income which showed consistency in its sound financial health. The identical trend before and during the wind-down showed that the changes in assets had a big impact on the company's operations. Since 2016, the trend of assets became smoother and increasing like the operating revenue and net income which confirmed the positive impact of the wind-down. Also, it showed that the continuous increase in assets helped the company generate more revenue and earnings. And the increasing earnings, in turn, helped the company sustain its operations. With this, one can say that the viability of the company has been consistent with long-term sustainability which shows that the company remained adequate to operate for a long period.

    To measure how the changes in assets changed the viability of the company, one may check Return on Asset (ROA). Before the wind-down, the company has been realizing adequate earnings relative to its assets as ROA remained above 5%. When it restructured ROA fell to -0.1%-2% in 2013-2015. After the wind-down, ROA substantially increased to 4.6% before increasing again to 6%-7%. The disruptions in the trend show the sharp changes caused by the wind-down. Meanwhile, the increasing ROA confirmed the increasing profitability of the company as the trend of net income became smoother than assets. Indeed, one can observe the increased efficiency in the operations. Despite the changes in assets, net income has been consistently increasing. In FY 2020, amidst the pandemic, the assets still increased which showed the company's resilience and capacity to operate. As a result, net income increased further which kept ROA above 7%. For the next few years, the estimation showed more opportunities for growth as things slowly cope with the situation. Hence, ROA may further increase to 8% to 9%.

    Taken from MarketWatch: Annual Financials

    Return on Equity

    Equity is an important account in the Balance Sheet since it helps the company leverage its increasing operations and shows what is left after paying all payables and borrowings. Moreover, it focuses on the interest of the shareholders and helps them track their earnings using Return on Equity (ROE). ROE also had an identical trend which showed consistency with the changes in assets and net income. The increasing solvency showed that the company had enough to cover all its liabilities while remaining sound to increase its capacity to operate. With this, one can understand the sustainability of the company's operations as increasing equity helped the company add assets and realize higher earnings. The upward trend of ROE showed the increasing viability of equity. From 10% in 2010, it became lower during the wind-down before increasing again to 16%-17% since 2016. Moreover, since the values of ROA and ROE have increased and remained close to one another showed that the company handled its financial leverage. It has maintained the balance between borrowings and equity. For the next few years, as earnings may increase faster, ROE may rise to 19% and the balance in the financial leverage may be maintained.

    Moreover, to further confirm how much the company's earnings can sustain its growth, one may check its Sustainable Growth Rate (SGR). Since the dividends that have been distributed were 21% of the company's earnings, the amount left was 79%. With its ROE of 17%, SGR was 13%. It shows that the company can still suffice its growth by 13% without increasing its financial leverage.

    Taken from MarketWatch: Annual Financials

    Nurturing Investors' Growth

    Dividends Per Share

    Tetra Tech, Inc. May be a newbie to dividend payments but its generosity since it started in 2014 did not falter. In just a few years, the dividends per share more than quadrupled with an average annual growth rate of 20%. Despite the wind-down and lower net income, the company was able to distribute dividends at $0.14 per share before doubling to $0.30 in 2015. In 2016 and 2017, the growth was slower at $0.34 and $0.38 but accelerated 2018-2020 at $0.44, $0.54, and $0.64 per share, respectively. The rapid growth was driven by the continuous increase in net income which remained higher despite the pandemic. The good condition of its operations also raised the dividends. Meanwhile, as things are expected to get better for the next few years, the dividends may go up. The computation using both the Dividend Growth Model and the Linear Trend Analysis agrees as it estimated the dividends from $0.74 per share to $0.90 per share.

    Taken from Nasdaq: Dividend History

    Dividends, Net Income, and Free Cash Flow

    Since it started distributing its dividend payments, the company's earnings remained adequate to sustain its growth and the operations of the company. In 2013-2015, the company wound down a segment that resulted in lower earnings but the company was able to distribute dividends. After the wind-down, growth in earnings became more apparent and large enough to cover all its financial obligations for the period. Nevertheless, the dividend remained relatively lower since the Dividend Payout Ratio remained at 10%-20%. In 2020, it became more substantial at 21%. While its value relative to net income was low, one can still observe that the dividend payments have increased substantially, given that it just recently started. Moreover, as the dividends may increase faster, the Dividend Payout Ratio may increase from 23% to 24% for the next few years.

    Likewise, Free Cash Flow (FCF) showed the company's adequacy with its generally increasing trend over the past decade. Also, it confirmed the sustainability and consistency of earnings since it also accounts for cash inflows from operating assets and liabilities, especially Capital Expenditure ((CapEx)). Since fixed assets remained a substantial part of assets, CapEx remained high which has been important to sustaining operations for a long period. Given the increased earnings and cash inflows from the changes in assets and liabilities, FCF has been increasing over the years. From $107 million, it already doubled and amounted to $250 million in 2020. The high amount of FCF showed the high capacity of the company to pay the dividends and borrowings for the period and sustain the increase in operations. For the next few years, like net income, it will also increase and become more adequate at $310 million.

    Taken from MarketWatch: Annual Financials and Nasdaq: Dividend History

    Stock Price

    The bullish trend of the stock price has been visible since it hit the bottom at $66.74 last March 23. Despite the overvaluation as suggested by the high PE Ratio of 38.40, the stock continues to perform well. It must be driven by the impressive FY 2020 results and the partnerships that the company won as FY 2021 started. To confirm if the current price is ideal, one may also check and estimate it in terms of dividend growth using the Dividend Discount Model.

    Current Price: $121.35

    Average Dividend Growth: 0.171999927

    Estimated Dividends Per Share: $0.74

    Cost of Capital Equity: 0.1780979905

    Derived Value: $142.2221911 or $142.20

    Given this, the model suggests undervaluation. It agrees with the bullish trend and the price may continue to increase to the derived value. Nevertheless, both the PE Ratio and Dividend Discount Model are limited ways to assess the stock price. Other factors that may either cause further growth or disruptions and even those that have an impact on the market must be considered.

    Opportunities for Further Growth

    Tetra Tech, Inc. Acquired BlueWater Federal Solutions

    Before FY 2020 ended, Tetra Tech, Inc. Announced its acquisition of BlueWater, Inc. The said company is a provider of information technology systems and services that specializes in cybersecurity, development of federal enterprise systems for US government clients such as the Department of Energy, Department of National Defense, and Federal Emergency Management Agency.

    While it shows the capacity of the company to expand its operations, it demonstrates its ability to integrate technology and analytics to better deliver its engineering services like water, environment, and infrastructure solutions. It's strategic on the company's side since it deals with consulting and engineering services so integrating it with high-end technology and analytics may further stimulate its operations. Also, it has been dealing with the government sector so adding BlueWater won't be a problem with the company. It may increase its revenue and reduce costs as the operations may improve and capture the demand from BlueWater's customers. An Increase in popularity may be expected. Its dedication to environmental solutions may start partnerships or receive investments from the other larger businesses, the government, and other institutions that concern with the environment, especially climate finance is being prioritized by many countries. As everything is slowly getting better, more companies are reopening and employees getting hired again which improves the market condition. Hence, the demand for its services may rise.

    Tetra Tech Wins Services Contracts

    FY 2021 might just have started last month but no time would be wasted with Tetra Tech, Inc. As it won multiple services contracts from companies and institutions such as the US Agency for International Development (USAID), US Army Corps of Engineers (USACE), and Federal Agency Management Agency (FEDA). The addition of BlueWater could have helped it since FEDA has long been its client. Moreover, it has been working on water, infrastructure, and environmental solutions and dealing with government agencies which made it a good fit for the job. As it further increases its revenue and earnings, its partnership with the government also increases its popularity to capture the attention and trust of many possible clients. Hence, demand may rise which may stimulate revenue and earnings growth and entice partnerships and investments.

    Key Takeaways

    The pandemic may be still taking its toll, but the market has adjusted and is gradually going back to normal. Many businesses have reopened and employees have been hired again. Tetra Tech, Inc. Was not an exception when the pandemic hit the market, but it remained still and coped with it, especially in 4Q.

    Short-term Investors: Its stock has been performing well. The bullish trend persists even if the PE Ratio suggests otherwise. The stock agrees with its impressive performance and the milestones it had as FY 2021 opened. Moreover, the Dividend Discount Model shows undervaluation when the price is estimated with dividend growth. Given the current trend of the price and the company's performance, investing here is a good idea.

    Long-term Investors: The company continues to expand. It was visible in 2Q 2020 when fixed assets and intangibles sharply increased. The addition of BlueWater in 4Q 2020 confirmed this. Despite the restructuring it did before, its financial health remained sound. When the pandemic came, it remained still and adjusted. Its sales may have decreased a bit but its efficiency increased which lessened the cost and increased its earnings. It shows that despite internal and external changes, the company could handle its operations while remaining adequate. Being a Dividend Challenger, the company may still have to prove its commitment to its shareholders since the dividends are not substantial relative to net income but the absolute value and the growth must be considered. With the current performance of the company, the possibility of a dividend cut may be zero. Long-term growth and security may be guaranteed by the company.

    Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Not Just Cam; Patriots Have Finally Found Their Path To Success

    Charles Krupa/Associated Press

    The New England Patriots are much closer to a return to prominence than their 4-5 record indicates.

    An unexpected 23-17 victory Sunday night against the Baltimore Ravens provided a blueprint for success for the rest of this season and into future campaigns.

    To be honest, the Patriots faithful were spoiled. Everyone indulged during the greatest dynasty in professional football's storied history. The 20-year Patriot reign was bound to come to an end eventually.

    Once Tom Brady left in free agency, the previous era came to a close. However, New England doesn't need to take a back seat in the coming weeks and years simply because it doesn't have the same faces leading the way anymore.

    The Patriots showed exactly how they can remain competitive and build upon a current young core of talent to reemerge on the other side of this transitory period and once again compete at a much higher level.

    Some of the issues seen during their 2-5 start came about because they had done everything in their power to keep the championship window open.

    "I mean, look, we paid Cam Newton $1 million. It's obvious that we didn't have any money," the coach told WEEI's Ordway, Merloni & Fauria during an early November interview (h/t CBS Boston). "It's nobody's fault. That's what we did in the last five years. We sold out. We won three Super Bowls, played in a fourth and played in an AFC Championship Game.

    "This year we had less to work with. It's not an excuse, it's just a fact."

    New England's cupboard isn't bare. Multiple young, talented players remain on the roster.

    When directly questioned about the team's draft missteps, Belichick took a different approach with his answer, per NESN's Zack Cox:

    "Well, I'd say—look, any time you bring a player onto your team, you put him into a role or a situation that you think fits him. Sometimes you have to modify that a little bit as you get to know the player, and then you work with him to try to develop that. He competes with other players at whatever position it is or whatever role it is, and ultimately, you choose—or we choose, I choose—the best player out of that competition.

    "So that's really the process. I don't know how else to answer the question. Obviously, each player's different. Each player competes with different players. Positions are different. So I don't know there's a general answer to that."

    Situation and adaptation are crucial components to a player's and coaching staff's success.

    Charles Krupa/Associated Press

    Newton's signing is the most obvious example. The Patriots were the only team still in search of a starting quarterback while also willing to take a chance on the former league MVP after he ended the previous two campaigns on injured reserve. Obviously, Newton isn't the same type of quarterback as Brady. But the Patriots have made offensive adjustments. They still use parts of their old playbook while simultaneously adding new elements.

    The three-time Pro Bowler's integration became Step 1 of the process as the Patriots offense continues to evolve. Newton doesn't necessarily need to be the focal point of the scheme. Instead, New England should concentrate on its two biggest strengths: a talented running back stable and one of the league's better offensive fronts.

    When the Patriots won Super Bowl LIII just two years ago, they didn't do so on the strength of Brady slinging the ball all over the yard. A strong downhill running attack paved the way for the offense. At the time, Sony Michel served as the team's bell cow.

    Now, Damien Harris has earned the lead back status. The 2019 third-round pick gashed the Ravens for 122 yards on 21 carries.

    "We wanted to stand up and show how tough and physical we were," Harris told reporters after his latest performance. "That was kind of the mentality of the whole team tonight."

    Harris runs with a level of physicality not seen from most backs. He's posted three 100-yard games in six appearances this season. The 23-year-old should become the focal point of the offense as the Patriots establish an identity of controlling games with a ground-and-point attack.

    In a world where spread offenses often dictate how defenses are built, the Patriots feature a 245-pound mobile quarterback and a young bull in the backfield to eat up carries. They can beat up undersized fronts and linebackers.

    And this run-oriented offense can work, despite New England's overall lack of skill-position talent, because of an impressive offensive line.

    As mentioned earlier, the Patriots won their last Super Bowl with a similar approach. At the time, they featured the game's best offensive interior in Joe Thuney, David Andrews and Shaq Mason. All three are still intact. Granted, Thuney and Andrews are free agents after this season, but New England has a projected $68 million in available salary-cap space next offseason, per Spotrac.

    Adam Hunger/Associated Press

    At tackle, the Patriots are young and talented with 2018 first-round pick Isaiah Wynn on the blind side and arguably the biggest draft surprise of the year, Michael Onwenu, playing outstanding football on the right side. According to Pro Football Focus, Onwenu held the third-best grade among guards entering this weekend's action. The sixth-round draft pick has bounced between positions this year, but he's been excellent wherever he's lined up.

    By re-signing Newton, Thuney and Andrews, the Patriots can then concentrate on improving other positions, like wide receiver and tight end. The difference is they'll do so with a plan already in place with complementary pieces being less of a concern.

    Currently, New England's offensive weapon options are limited, though Jakobi Meyers continues to work himself into a much bigger part of the scheme. Over the last four games, the 2019 undrafted free agent has compiled 27 catches for 346 yards. The former college quarterback also threw a touchdown pass against the Ravens.

    Belichick's defense isn't what it once was, yet certain building blocks are already in place, starting with cornerback J.C. Jackson. Stephon Gilmore is the headliner as the reigning NFL Defensive Player of the Year. Unfortunately, he's dealing with a knee injury that's kept him out the lineup for New England's last three games. Jackson has been wonderful in Gilmore's absence.

    The third-year cornerback leads the NFL with six interceptions. He has snagged one in five straight contests and has the most since he entered the league two years ago, per Cox.

    Adam Hunger/Associated Press

    "I'm a playmaker, man. I know how to play the ball better than—I know how to play the ball pretty well," Jackson told reporters after the game. "I become a receiver when I go up for the ball."

    Up front, Chase Winovich is an emerging star. The 2019 third-round pick consistently brings pressure and energy to the lineup. According to The Athletic's Jeff Howe, Winovich finished with a quarterback hit and 10 pressures against the Ravens.

    The Patriots have really attractive pieces already in place at premium positions. Those will serve as the building blocks.

    A physical rushing attack coupled with an aggressive and opportunistic defense should be New England's calling card in the coming weeks, months and years. Eventually, the team will find another franchise quarterback, whether through improved play from Newton, who could be re-signed next offseason, or a draft pick in the near future. Until that's settled, they can rely on their running game.

    "We're definitely headed in the right direction," Belichick told reporters.

    Brent Sobleski covers the NFL for Bleacher Report. Follow him on Twitter, @brentsobleski.

    Modern Cloud Solutions Provide The Direct Path To Agility

    (Image by Gerd Altmann from Pixabay )

    Companies were already on a forward march to cloud computing, when the global COVID-19 pandemic hit and accelerated the need for agility. This urgency to adapt to changing conditions and empower a remote workforce is accentuating the benefits of cloud solutions. Without having to worry about the physical infrastructure of hardware and security, companies can rapidly deploy new end-to-end solutions to support major shifts in business models as they respond to market pressures and seize unfolding opportunities. Cloud solutions are in high demand among the industries hardest hit by the pandemic. Innovation is their survival tactic.

    At Infor, we liken this global upheaval to a double-edged sword. On one edge, the pandemic has caused massive disruption to companies. On the other, it has given organizations pause to think about how technology can support them in a world very different from the world before COVID. It has absolutely accelerated technology adoption in certain industries.

    Key problems spots

    Supply chain management is one function that has been deeply impacted. Sudden, severe shortages of goods, from facemasks to hand sanitizer and toilet paper, shined a glaring spotlight on the vulnerability of the traditional supply chain network. Commercial kitchens saw decreased demand, but the consumer market demand increased. Shifting the inventory to local grocery stores proved surprisingly difficult.

    Retail, too, faced inventory challenges in attempts to accommodate buyers who turned to online purchasing. Supporting such major changes with legacy software can be problematic. Heavily modified, traditional on-premises solutions take considerable time and coding expertise to update, leaving many companies struggling to adapt.

    A matter of resilience

    There is also concern globally about what is happening in business as a whole. Organizations are more concerned about sustainability and resilience, and this will continue after the pandemic. Larger businesses are often better equipped to adapt, but the smaller companies may be harder hit, creating even greater disparity.

    The delta between those that adapt and those that don't will keep widening as consumer spending, travel, and in-person activities return, many experts contend.

    Innovation has been the economic lifesaver. Companies are using enterprise asset management (EAM) solutions to help create safe work environments. Manufacturers are using cloud ERP solutions to help accommodate component delays because of supply chain disruption. Retail stores are shifting to online models. Restaurants are turning their parking lots into outdoor, socially distanced seating. Service companies are turning to virtual offerings. And, healthcare facilities are turning chaos into plans to create long-term relationships and growth. Software helps make these types of innovative, problem-solving changes happen. Cloud deployment means such changes happen remotely and quickly.

    For the world's second largest tire manufacturer, its goal in moving to the cloud was to make doing business easier by transforming it relationships and transactions with customers. Cloud solutions have helped the organization enrich its experience with original equipment manufacturers (OEMs) and improve day-to-day tasks for employees by doing away with low-value-added tasks. These solutions also have made data more reliable and accessible and boosted efficiency of operations through more simplified processes. The move to the cloud has helped the company meet key business objectives and requirements, developing connectivity across operations like never before, and it can remain agile and modern with easy solution updates.

    Shifting priorities

    The companies that leverage technology now will be well positioned to apply innovation, digital strategies, and customer-centric thinking to their recovery process. Those that don't keep pace with change will be playing catch-up - or may never rebound.

    Many enterprises are planning for recovery now. We are seeing organizations moving up plans that may have been number three or number four on their priority lists. Now, they are seeing that a full enterprise-wide cloud deployment makes sense and needs to happen quickly.

    Cloud solutions leave much of the heavy lifting - like servers, security, compliance, back-ups and ongoing updates - to the provider. No longer do IT teams need to devote months or years to planning upgrades or adding new functionality.

    Companies are no longer saying, "Why cloud?" Now, they are looking at who can best accompany them on the journey. They are looking for who can get them up and running quickly, with the least disruption.

    Consider the case of a UK company that develops advanced software for managing and analyzing energy data for 11,000 organizations and 170,000 sites. With cloud-based analytics solutions, the company now has the ability to transform inefficient and highly manual reporting, build an infrastructure for customer self-service reporting, migrate from a desktop product to a modern web-based user interface, and drive customer growth and adoption. And being on a multi-tenant cloud architecture significantly speeds the process of onboarding new customers.

    Necessity dictates rapid deployment

    Desire for a fast return on investment (ROI) is driving many organizations to make bold, confident leaps of faith in adopting new technologies, research shows. There's less fretting over proof-of-concept programs and laborious trial projects.

    "Business leaders are saying that they've accomplished in 10 days what used to take them 10 months," says Kate Smaje, a senior partner and global co-leader of McKinsey Digital. "That kind of speed is what's unleashing a wave of innovation unlike anything we've ever seen."

    At Infor, we use a 60-30-10 "agility model" for deployment to help meet this demand for rapid implementation. The model calls for 60 percent of the functionality to be adopted "out of the box" and 30 percent to be achieved through industry-specific features and extensibility. That leaves 10 percent to be the organization's true differentiators that are more personalized. By streamlining adoption this way, companies are seeing greater ease of implementation and faster time-to-value.

    It's a change in mindset, as much as a change in approach. Organizations have to recognize the value of shorter cycles and modernizing their capabilities on a regular basis - rather than making big upgrades every 10 years or so. The top executives are often the first ones to realize that modifications tend to slow down future progress and should be avoided when possible.

    What's next?

    A recent McKinsey report notes, "The financial planning process for 2021 presents an opportunity to turn hard-earned lessons from the COVID-19 pandemic into an enduring exercise in linking strategy to value."

    Now, as leaders look ahead to the next year and beyond, they're asking: "How do we keep this momentum going? How do we take the best of what we've learned and put that into practice after the pandemic, and make sure it's woven into everything we do, going forward?"

    Modern cloud solutions provide the direct path to agility. And, working with a solution provider that has the same vision and the same commitment to business success is a giant leap in the right direction.

    Infor's CloudSuites are designed to enable business agility. To learn more about rapid deployment and our 60-30-10 methodology, check out this blog.

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