Primoris Services Corp (PRIM) stock intrinsic value fair value estimate & owner earnings analysis

Primoris is a Dallas-based specialty contractor that builds and maintains energy and utility infrastructure, almost entirely in the United States (Canada was 2.3% of 2025 revenue). It has two segments. Utilities ($2.69 billion of 2025 revenue) does power-line, gas-distribution and communications work for utilities, much of it under multi-year master service agreements; those agreements produced $2.43 billion of company revenue in 2025. Energy ($5.02 billion) builds utility-scale solar projects, pipelines, gas-fired plants and industrial facilities. Renewables were about $3.0 billion of 2025 revenue. The business has grown quickly, from $2.0 billion of revenue in 2016 to $7.57 billion in 2025, helped by two large acquisitions: Future Infrastructure in 2021 and PLH Group in 2022. How we measured earnings: we start from operating cash flow and remove working-capital swings, stock compensation and the capital spending needed to keep the equipment fleet running. Primoris sells used equipment every year to refresh its fleet, so we count those sale proceeds against equipment purchases. We also add back the amortization of acquired intangibles ($17.7 million in 2025). The company is increasingly leasing equipment instead of buying it, and those lease costs are already deducted in our figure. On this basis owner earnings per share were $2.56 in 2022, $3.70 in 2023, $4.31 in 2024 and $5.33 in 2025. Since the PLH purchase changed the company, we use the median of 2022 to 2025, about $4.00 per share, as normal earning power. Unusually large equipment sales ($63.7 million in 2023 and $99.3 million in 2024) flatter those two years. 2025 was a peak renewables year. The median sits between these extremes. What changed in 2026: Six fixed-price renewable projects ran into redesigns, sequencing changes, poor labor productivity, sub-surface problems and bad weather. The Energy segment's gross margin fell to -0.3% in the second quarter. Primoris lost $6.7 million in the first half, including a $24.2 million loss in the second quarter. In June the company cut its 2026 net-income outlook from $223-234 million to $71-101 million, and its chief operating officer left. Fixed-price work was $3.48 billion of Energy's $5.02 billion of 2025 revenue, so a bidding or execution mistake shows up directly in profit. The company expects all six projects to be finished by the fourth quarter of 2026. Backlog grew to a record $13.9 billion at June 30, 2026, from $11.9 billion at year-end ($7.7 billion Utilities, $6.2 billion Energy). In the second quarter Primoris bought PayneCrest Electric, a Midwest industrial electrical contractor, for $422 million, mostly with borrowed money. Long-term debt rose from $409 million to $752 million and cash fell to $218 million. Base case ($60.63): 2026 owner earnings fall to about $1.30 per share, versus $5.33 in 2025. As the troubled projects finish and the record backlog is worked off, earnings recover to $3.50 in 2027 and back to the $4.00 norm in 2028, then reach about $4.20 by 2029-2030. PayneCrest adds a small amount after its interest cost. Federal tax credits for solar and wind now require projects to start construction by July 2026 or be in service by the end of 2027 (the July 2025 tax law). We therefore expect renewables work to shrink once the protected projects are built, and earnings dip to $3.80 in 2031. After that, utility grid work carries modest growth back to $4.20 by 2035. Beyond 2035 we hold earnings flat for another 30 years on the strength of the utility service-agreement business, which has decades of history, and stop there rather than assume a perpetuity. About $27 of the value comes from the first ten years and about $34 from the years after. Bear case ($32.61): Execution problems are not confined to six projects, because fixed-price renewables work has shown it can erase most of a year's profit. 2026 comes in near $0.80, and recovery stalls at $2.00-$2.80 through 2030. The tax-credit cliff then removes most renewables profit, leaving about $2.40 a share. That is somewhat above the $1.42 to $2.10 a share it earned in 2017 to 2019, before the utility acquisitions. The $2.40 level is held flat for 20 years. The new PayneCrest debt makes a bad stretch harder to absorb. Bull case ($87.50): 2026 owner earnings reach about $1.85 a share, in line with the top of the revised outlook, and the record backlog comes back at normal margins: $4.50 in 2027, and about $5.40 by 2029, slightly above 2025's $5.33. Utility, gas-generation and industrial electrical demand more than offset the renewables fade, and earnings grow about 4% a year to $6.30 by 2035, held flat for 30 years after that. The shares appear to be worth about $61 in our base case, within a range of about $33 to $88. What would make this wrong: margins that do not recover after the six projects finish, or losses spreading to other fixed-price jobs; renewables work falling faster than the tax-credit timeline implies; or the debt-funded PayneCrest deal disappointing. Management's 2026 outlook fell by more than half within months, so we give its forecasts little weight.