Last week President-elect Barack Obama proposed a massive infrastructure spending plan that might limit the current depth of the recession. The plan, which is expected to be dedicated to rebuilding roads, bridges, schools, electrical grids and dams, would be “sizeable, substantial, and sustained” in its length and scope.

While Obama refused to put a cost on the plan, senior Democrats are talking about $700 billion, and others are suggesting up to $1 trillion. Obama hinted that the plan could create upwards of 2 million new jobs.

So what’s the trade?

The major construction and infrastructure companies, such as Fluor (FLR), KBR (KBR), Foster Wheeler (FWLT), and Jacobs Engineering (JEC), are all up substantially amid investor sentiment that these companies are the likely beneficiaries of Obama’s infrastructure plan. While that is true, there is a whole other class of small and mid-sized infrastructure companies that could capitalize under this massive stimulus.

MasTec (MTZ) is a small specialty contractor based in U.S. whose main contracting book of business involves the installation, maintenance and upgrading of communications and utility infrastructure. As of 2008, 60% of MasTec’s revenue came from the communication sector; this involves contracts with such companies as AT&T (T) and Charter Communications (CHTR). Utilities represented 34% of revenue; contacts included deals with such companies as XTO Energy (XTO).

For the full year 2008, MasTec is on track to report revenues of $1.21 billion to $1.23 billion, a nearly 18% increase from its 2007 earnings. More important, earnings which will come in for the full year 2008 in the range of 88 cents to 92 cents, up 35% for the year. MasTec has a backlog, an important figurer when analyzing construction companies, of around 18 months deep, with a total value of $1.5 billion dollars.

MasTec trades with a forward P/E of 7.8 and EV/EBITDA of 5.6.

Integrated Electrical Services' (IESC) main business comes from designing, building, maintaining and servicing electrical, data communications and utilities systems. For the third quarter of 2008, Integrated's adjusted income was up more than 100%, coming in at 18 cents per share, vs. last year’s 7 cents per share. Adjusted EBITDA for the year went from 15% in 2007 to 19.2% in 2008, improving the firm’s total gross margins. Integrated has a backlog of $367 million, which should last it well into late 2009.

Emcor (EME) provides worldwide construction and support for various electrical and mechanical construction projects worldwide. It's the world’s largest specialty construction and facilities service provider, with 2008 estimated revenues of around $6.8 billion to around $7 billion. For the year, Emcor revenue is up 14.6% to $1.7 billion; demand in U.S electrical construction and facilities is up 27%. Operating income was up 43.2% for the year, coming in at 4.6% gross margins. Recently, Emcor won a few major electrical contracts, including Harvard University, Atchison Hospital and the University of Wisconsin’s School of Medicine. Emcor has a backlog of around $5 billion.

The stock trades with a forward P/E of 8.7 and EV/EBITDA of 3.6.

Astec Industries (ASTE) is America’s leading manufacturer of equipment for asphalt road building, pipeline and utility trenching, and wood processing. It manufactures more than 175 products, from rock crushers to hot-mix asphalt facilities and asphalt pavers. Operating margins are north of 10%, with total revenues of $1 billion.

Astec trades with a forward P/E of 13.31 and EV/EBITDA of 5.822.

Thermadyne Holdings (THMD) designs and manufactures welding, cutting torches and other heavy machine tools worldwide. Of the firms sales, 60% come from the U.S., with 21% coming from Asia, 12% from the Middle East and 8% from Central and South America. Thermadyne has more than 400 customers in the U.S, boasting an average relationship life of 50-plus years with each client. Sales went from $410 million in 2005 to $500 million in 2007, with Thermadyne showing a solid 10.5% sales growth in the third quarter of 2008 alone.

Gross margins are an impressive 34% to 36% firm wide, with EBITDA margins of 16% to 19%.

Posted on Dec. 16, 2008