A joint venture of Tetra Tech Inc. (TTEK) with ACCIONA Infrastructures Canada Inc., called Tetra Tech Canada Construction, has been awarded a $30 million Lameque Wind Energy Contract. Tetra Tech, through this JV, will be supplying its turn-key construction services to the Lameque Wind Power Project in New Brunswick, Canada.
 
ACCIONA Energy North America is Tetra Tech’s client for the project, which involves commissioning of a 45-megawatt (MW) wind farm with thirty 1.5-MW ACCIONA Windpower turbines by early 2011. The company’s construction management services will be used for the access roads, foundations, turbine transportation and erection, electrical collection system and substation facilities, and the operations and maintenance building.
 
Over the next couple of years, we expect the U.S. stimulus package to drive sales and profit of the company. Tetra Tech is expected to exceed expectations in 2010, given its defensive growth profile, strong balance sheet and potential for further upside from stimulus spending and potentially accretive acquisitions.
 
Federal bodies like The United States Agency for International Development (USAID), the Army Corps of Engineers and the Environmental Protection Agency (EPA) are all receiving significant increases in funding even without taking stimulus spending into account. Including stimulus funding, these departments along with the Department of Defense are responsible for approximately 40.0% of TTEK’s revenues.
 
However, demand for state and local government services is cyclical and vulnerable to economic downturns. If the economy weakens, the company’s revenues, profits and financial condition may deteriorate. Tetra Tech derives a majority of its revenue from government agencies. A significant shift in the U.S. defense spending could harm its operations and reduce the future revenues. Moreover, delay in the completion of the budget process for the U.S. government could postpone procurement of its services adversely impacting future revenues.
 
Headquartered in Pasadena, California, Tetra Tech Inc. was initially founded in 1966 as a provider of engineering services related to waterways, harbors and coastal areas. Over the past 40 years, the company has substantially increased the size and scope of its business and expanded its service offerings through a series of strategic acquisitions and internal growth. Tetra Tech at present provides environmental services, water/wastewater management, infrastructure services, security design, and outsourced technical services.  The company currently operates 250 offices worldwide and employs about 10,000 people. Major competitors of Tetra Tech are Arcadis NV, Shaw Group Inc. (SHAW) and URS Corporation (URS).
 
We currently maintain our Neutral rating on Tetra Tech, with a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.

 
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