Fundamental Analysis of Sterling Construction Co Dated: Fall 2013

1. Abiram Balasubramaian
Auzma Rashid Kakroo
Jeffery Visava
Kimaya Sadavarte
Naikaj Bhobe

2. Overview of SCC
“Safety, Quality, People and Innovation”-
Form the core of the company values
1700 Employees
$700 million revenue, consistent GM ratio
of >6%
Transportation & Water Infrastructure
Government highway projects
Has seamlessly acquired other entities over
the years to expand its geographic footprint
Sterling Construction Company

3. Geographic Presence in the US
Sterling Construction Company

4. Competitors
Sterling Construction Company

6. Executive Compensation in
2013
Sterling Construction Company
-40
-30
-20
-10
0
10
20
30
2Q2013 2012 2011 2010 2009 CEO's compensation
Net Income

7. Executive Compensation - Justified by
Performance?
Sterling Construction Company
Title Name Salary (including Bonus)
Chairman Mr. Patrick Manning $618,240.00
Chief Executive Officer Mr. Peter MacKenna $1,701,641.00
Executive Vice President, CFO Elizabeth Brumley
$345,026.00
EVP Operations Mr. Anthony F. Colombo $405,382.00
Director Mr. Milton L. Scott
$75,542.00
Director Mr. David R A Steadman
$75,542.00

8. Market overview
Sterling Construction Company
 Sterling Construction relies heavily on
government highway work & has been
adversely affected by Congress' inability to
pass the Federal Highway Bill.
 In response to the uncertain outlook Sterling
refocused on project execution and
conservative bidding.
 The Past 2 years have been difficult but
Sterling has tried its best in Balance Sheet
management (esp. control A/R collection days)

9. Simplified Balance Sheets
Sterling Construction Company
Balance Sheet
(All in 000,000's)
2Q2013 12/31/12 12/31/11 12/31/10 12/31/09 12/31/08 12/31/07
Assets
Cash & Short Term Investments 22.03 52.35 61.23 85.19 93.73 79.68 80.7
A/R 96.24 81.82 80.93 77.04 82.62 60.58 54.39
Inv 4.6 3.73 1.92 1.48 1.23 1.04 1.24
Pre. Exp 0 0 0 0 0 0 0
Other Current assets 34.09 26.85 19.94 12.61 11.61 9.41 6.61
PPE 97.5 102.31 83.43 74.68 80.28 80 72.39
Goodwill 54.82 54.82 54.05 114.74 114.74 57.23 57.23
Other Long Term Assets 19.79 9.62 2.33 1.38 1.53 1.67 1.95
TA 329.07 331.50 303.83 367.12 385.74 289.61 274.51
Liabilities and Shareholders Equity
A/P 55.82 47.87 34.43 35.43 32.62 26.11 27.19
W/P, I/P, T/P 6.35 4.91 7.34 8.41 4.66 0.55 1.1
Other Current Liabilities 29.28 24.57 27.52 25.21 38.02 30.94 32.49
LTD 47.11 41.56 19.71 47.65 79.67 72.9 75.02
PIC 200.45 199.67 197.83 199 198.06 150.35 147.92
R/E -9.94 12.92 17 51.42 32.71 8.76 -9.21
TL+E 329.07 331.50 303.83 367.12 385.74 289.61 274.51

10. Simplified Income Statements
Sterling Construction Company

11. Backlog and Revenue Trends
Sterling Construction Company

12. Financial Metrics and Ratios
Sterling Construction Company
11 10.11
13.91 13.63
7.95 7.53
-6.24
-10
-5
0
5
10
15
2006 2008 2010 2012 2014
Gross Profit Ratio
Gross Profit
Ratio 2.35
2.62 2.51 2.55
2.37
2.13
1.72
0
0.5
1
1.5
2
2.5
3
2006 2008 2010 2012 2014
Current Ratio
Current Ratio
0.98
0.82
0.67
0.47
0.41
0.56
0.73
0
0.2
0.4
0.6
0.8
1
1.2
2006 2008 2010 2012 2014
Debt to Equity Ratio
Debt to Equity
Ratio 7.65
9.71 9.71 9.78
-17.19
4.52
-10.36
-20
-15
-10
-5
0
5
10
15
2006 2008 2010 2012 2014
Return on Assets
Return on
Assets

13. Financial Ratios
Sterling Construction Company
15.15
17.68 16.23
14.34
-24.31
7.05
-17.89
-30
-20
-10
0
10
20
2006 2007 2008 2009 2010 2011 2012 2013 2014
Return on Equity
Return on
Equity
-3
-2
-1
0
1
2
2006 2008 2010 2012 2014
Earnings per Share
Earnings per
Share
64.83
53.27
77.16
61.14 58.94
47.37
143.74
0
20
40
60
80
100
120
140
160
2006 2007 2008 2009 2010 2011 2012 2013 2014
A/R Collection in days
A/R Collection in
days
36.42
25.54
35.38 32.56
27.24 29.97
78.47
0
10
20
30
40
50
60
70
80
90
2006 2008 2010 2012 2014
A/P payables in Days
A/P payables
in Days

14. Ratio Overview
Sterling Construction Company
 Revenues declined 8.5% due to the
completion of several large projects in Utah
partially offset by execution on jobs in
TX, CA, NV
 GM impacted due to execution of several low
margin contracts awarded pre-2012
 SG&A increased due to long term investments
in operational efficiency especially IT
infrastructure, leadership team and certain
non-recurring costs

15. Stock Prices from Semester’s
Beginning
Sterling Construction Company

16. Stock Prices from Semester’s
Beginning
Sterling Construction Company
Lowest in this semester: $8.67 on 8th October
2013
Highest in this semester: $11.47 currently

17. Pro forma and Trends
Sterling Construction Company
Future Net Income Analysis
3
6.5
10
13.5
17
0
2
4
6
8
10
12
14
16
18
2012.5 2013 2013.5 2014 2014.5 2015 2015.5 2016 2016.5 2017 2017.5
Net Income
Net Income

18. Sterling Construction Company

19. Backlog
Sterling Construction Company
Backlog of 714 Million up
from 656 Million last year

20. Recommendations
 Expand into new service lines & Geography
 Increase market leadership in core geographic
markets (UT, TX, NV)
 Focus on shorter duration/higher margin
projects
 Streamline operations through functional
integration of subsidiaries using the new IT
infrastructure
 Continue attracting new innovative talent to
keep in line with the high revenue per
employee (Revenue of 410,000$ per
Sterling Construction Company

21. SO, Should we buy this stock?
Sterling Construction Company
YES, This is a value stock
and it is the right time to buy
this stock