Fidelity’s John Mirshekari: URS Could Double in Two Years

Fidelty’s John Mirshekari took a look at URS (URS) today  at the Value Investing Congress. His takeaway: The stock could double in two years.

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His analysis started with URS’s use of its free cash. During the past, it hasn’t been pretty. They spent 6.3 billion on eight acquisitions, they’ve bought companies at valuations higher than own stock and return-on-equity has dropped from high teens to just 6%.

The problem hasn’t been its business: Its return on tangible capital is 17%. Instead, the problem is that its management hasn’t maximized value through capital allocation. URS has lowest valuation: 9x 2013 cash earnings in its industry.

Part of the problem: Management incentives are based on net income. This year, however, relative total shareholder return was added., something Mirshekari calls ”a step in the right direction.” In May, URS filed an amended proxy which says it will look to change incentives from net income to return on equity and earnings per share. More importantly, it said acquisitions would end.

If all goes right, URS could double in two years, Mirshekari says, comparing it to AECOM Technology (ACM).

Looks a lot like AECOMM, which did something similar and rallied.