Tetra Tech fixes the water pressure

From Times staff writer Edward Silver:

While it may be true that those who control oil and water will control the world, one commodity is riding boom times and has built colossal corporations. Yet it’s the other one we can’t live without.

Tetra Tech Inc., a specialist in water engineering and environmental cleanup, illustrates the disconnect. The Pasadena firm also boasts a budding wind power business, all of which buffs its green credentials and, some would say, puts it in step with where the world is going.

But the crucial work of purifying water, assessing tsunami damage and detoxing military bases doesn't often spark the kind of growth that fires up a stock. Instead, Tetra Tech enjoys a stable, profitable flow of contracts with the federal and local governments. Water infrastructure may be creaky and supplies at risk, but budgets tend to be stagnant. Unlike those that deal in that other commodity, water companies' pricing power is limited.

Last Wednesday, Tetra Tech posted superb quarterly results, highlighted by a 28% earnings-per-share gain and an expanding order backlog. The stock leaped almost 20% the next day to a four-year high of $25.15. Is Tetra Tech leaving slow growth in the dust? Definitely, said CNBC’s Jim Cramer, who gave its wind venture a big boo-yah and sent his fans scurrying to get in.

Analysts were impressed too. With the stock suddenly in the mid-$20s, however, Debra Coy of Janney Montgomery downgraded it to “neutral” from “buy.” She increased her forecast for the year but only by the 3 cents a share by which the company beat estimates during the period. And though revenue, after paying subcontractors, was up 22%, it would have increased less than 7% without help from recent acquisitions.

Jeffrey Beach, an analyst with Stifel Nicolaus, explains that water resources are not awash in public funds. He has a “hold” rating on Tetra Tech.

“The U.S. has neglected its infrastructure since World War II -- the electric grid, roads, bridges, water,” he says. “But we’re generating the largest deficits in history with all this infrastructure to fix. There are massive spending needs, but not all that much will go into  water.”

There may come a time, though, when water needs can no longer be dammed up. Some of Tetra Tech’s projects, like helping Orange County ensure its potable supply and designing post-Katrina flood barriers in Louisiana, could herald things to come here and around the world.

Aquifers are being depleted and polluted in China, Mexico and Saudi Arabia. In the drought-prone Southwest, the Sierra Nevada snowpack retreats as the Colorado River strains under the demands of seven states. The know-how of a company like Tetra Tech may come into play to keep us afloat.

Money & Co. blogger Tom Petruno is on vacation this week. He returns May 12.

Photo: Corbis