ICF International: A Stock Picker's Play On Disaster Recovery Services

After days of flooding the Texas coast, Tropical Storm Harvey hit land again Wednesday, inundating the Louisiana-Texas border with 2- to 4-foot storm surges. At least 30 have been confirmed dead, and destruction is said to be in the $50 billion range, and still climbing.

But recovery aid is standing by. ICF International Inc ICFI is awaiting its call.

“With expertise which lies more in the recovery phase of disaster relief, rather than in up-front response-related activities, opportunities to help post Harvey are likely at least six months away for ICF,” Loop Capital Markets analyst Joseph Vafi wrote in a Monday note. Loop has a Buy rating on the stock and predicts 26-percent upside.

Healing Houston

For decades, ICF has led consulting for the Department of Housing and Urban Development, for whom it devised and implemented housing recovery programs after hurricanes Rita and Katrina.

Under the federal “Road Home” contract, the firm processed more than 180,000 disaster relief applications and disbursed more than $10 billion in post-Katrina aid, according to Loop. Related revenue amounted to about $900 million over time, with one quarter bringing in $129 million.

With Houston’s population five times that of New Orleans, Vafi expects Harvey’s human and economic impact to exceed that of Katrina, which means more work for ICF. In fact, it may mean too much work.

“Our initial impression is that the size and scope of recovery activity post Harvey is likely too large for a single firm to be able to service alone,” Vafi wrote.

Relief Restrictions

Vafi expects contract opportunities to arise in the coming months as the Trump Administration shapes recovery-related housing policy and appropriates funds for Harvey’s impact. Changes to the federal strategy create uncertainties as to the scope of ICF’s involvement.

“The Road Home contract was quite large and we do not think at this early point that the math related to contract sizes for Harvey are necessarily linear,” Vafi wrote. “Road Home was a first of its kind contract, entailing significant upfront risk for ICF. With more experience and a much larger population affected, any contracts that emerge, while likely very material in size, could be structured differently this time around.”

ICF has traded up 1.8 percent since Harvey hit Friday. As of Wednesday morning, it was valued at $44.30 per share.

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Image credit: The National Guard, Flickr