Tetra Tech (TTEK)

Environmental engineering firm Tetra Tech (NASDAQ:TTEK) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 7.7% year on year to $1.23 billion. The company expects next quarter’s revenue to be around $975 million, close to analysts’ estimates. Its GAAP profit of $0.48 per share was 18.5% above analysts’ consensus estimates.

Company Overview

With a 50-year legacy of "Leading with Science" and operations on all seven continents, Tetra Tech (NASDAQ:TTEK) provides high-end consulting and engineering services focused on water management, environmental solutions, and sustainable infrastructure for government and commercial clients worldwide.

Growing regulatory pressure on environmental compliance and increasing corporate ESG commitments should buoy the sector for years to come. On the other hand, environmental regulations continue to evolve, and this may require costly upgrades, volatility in commodity waste and recycling markets, and labor shortages in industrial services. As for digitization, a theme that is impacting nearly every industry, the increasing use of data, analytics, and automation will give rise to improved efficiency of operations. Conversely, though, the benefits of digitization also come with challenges of integrating new technologies into legacy systems.

Tetra Tech competes with other environmental and engineering consulting firms including AECOM (NYSE: ACM), Jacobs Solutions (NYSE: J), WSP Global (TSX: WSP), and Stantec (NYSE: STN), as well as with specialized environmental and water management consultancies.

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $4.69 billion in revenue over the past 12 months, Tetra Tech is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions.

As you can see below, Tetra Tech grew its sales at an exceptional 14.8% compounded annual growth rate over the last five years. This is an encouraging starting point for our analysis because it shows Tetra Tech’s demand was higher than many business services companies.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Tetra Tech’s annualized revenue growth of 11.8% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Tetra Tech reported year-on-year revenue growth of 7.7%, and its $1.23 billion of revenue exceeded Wall Street’s estimates by 17.3%. Company management is currently guiding for a 18.6% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 12.8% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

Tetra Tech has done a decent job managing its cost base over the last five years. The company has produced an average adjusted operating margin of 11.8%, higher than the broader business services sector.

Analyzing the trend in its profitability, Tetra Tech’s adjusted operating margin rose by 2.1 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, Tetra Tech generated an adjusted operating margin profit margin of 13.9%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Tetra Tech’s EPS grew at a decent 8.1% compounded annual growth rate over the last five years. Despite its adjusted operating margin improvement during that time, this performance was lower than its 14.8% annualized revenue growth, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Tetra Tech, its two-year annual EPS declines of 4.4% mark a reversal from its five-year trend. These shorter-term results weren’t ideal, but given it was successful in other measures of financial health, we’re hopeful Tetra Tech can return to earnings growth in the future.

In Q3, Tetra Tech reported EPS of $0.48, up from $0.35 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Tetra Tech’s full-year EPS of $0.93 to grow 51.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Tetra Tech has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 9.7% over the last five years, quite impressive for a business services business.

Taking a step back, we can see that Tetra Tech’s margin dropped by 2 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Tetra Tech has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 14.8%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Tetra Tech’s ROIC has unfortunately decreased. If its returns keep falling, it could suggest its profitable growth opportunities are drying up. We’ll keep a close eye.

Tetra Tech reported $167.5 million of cash and $987.2 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $661.7 million of EBITDA over the last 12 months, we view Tetra Tech’s 1.2× net-debt-to-EBITDA ratio as safe. We also see its $30.8 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Tetra Tech beat analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its EPS guidance for next quarter missed. Overall, we think this was still a solid quarter with some key areas of upside. Investors were likely hoping for more, and shares traded down 1.9% to $31.80 immediately following the results.

Updated: December 4, 2025 at 9:07 PM EST

Before investing in or passing on Tetra Tech, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

In our opinion, Tetra Tech is a good company. First off, its revenue growth was exceptional over the last five years. And while its diminishing returns show management's recent bets still have yet to bear fruit, its projected EPS for the next year implies the company’s fundamentals will improve. On top of that, its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion.

Tetra Tech’s P/E ratio based on the next 12 months is 23.3x. Looking at the business services space right now, Tetra Tech trades at a compelling valuation. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $42.17 on the company (compared to the current share price of $35.25), implying they see 19.6% upside in buying Tetra Tech in the short term.