7 engineering stocks to profit from infrastructure spending

The Investment Reporter regularly reviews 10 engineering stocks—seven it rates as buys. We expect these companies to profit from the need to renew aging, and build new, infrastructure. The new federal government is committed to invest in infrastructure, even if means borrowing money and running deficits for the next three years. And the Ontario government is also committed to building infrastructure—especially transportation projects.

Years of little investment have caused a large ‘infrastructure deficit’. Eliminating this deficit would create many jobs. Better infrastructure would also assist economic growth for many years to come. As a result, we rate seven of our engineering stocks as ‘buys’. Their time may have come. Today we look at one of those seven, Edmonton-based Stantec Inc.

Since we published our May 29 issue, Stantec Inc.’s (TSX─STN) shares have fallen by 14.7 per cent. As a result, you can buy this high-quality engineering stock at a better price. It’s expected to earn record profits this year and next as it keeps expanding. This year the company raised its dividend by 13.5 per cent, to 42 cents a share. That yields a decent 1.4 per cent. We expect it to raise its dividends in the years ahead. Stantec remains a buy for long-term share price gains as well as decent and rising, dividends.

Stantec’s 15,000 employees work in over 250 locations, primarily in Canada and the United States. It writes, “We collaborate across disciplines and industries to bring buildings, energy and resource, and infrastructure projects to life.” The company offers consulting services in planning, engineering, architecture, interior design, landscape architecture, surveying, environmental sciences, project management and project economics. ‘Buy America’ rules have no impact. Its diversification is paying off.

In the six months to June 30, Stantec earned a record $81.1 million, or 86 cents a share. This was up by 3.6 per cent from $77.8 million, or 83 cents a share. The record earnings reflect this engineering stock’s diversification by business and geography.

Stantec continues to earn record results

President and chief executive officer Bob Gomes said, “With both our Buildings and Infrastructure businesses demonstrating strong performance, our diverse business model is providing a solid foundation for managing our Company through the economic factors impacting the oil and gas industry.”

Stantec keeps expanding. Since the end of the second quarter, it has made three acquisitions in the U.S. On July 13, Stantec acquired VI Engineering of Texas. This firm designs high-voltage electrical substations, transmission and distribution lines as well as electric power systems. Mr. Gomes said, “The utility transmission and distribution marketplace is in the midst of major growth. VI Engineering’s strong background . . . adds to our platform to better serve our clients in these areas across the country.”

On August 27, Stantec agreed to acquire Fay, Spofford & Thorndike of Massachusetts. This firm’s infrastructure projects include airports, bridges, roads, railways, marine and waterfront, water and wastewater treatment systems, trail design and environmental services. Mr. Gomes said, “Together, we bring even greater resources to handle the challenges ahead, whether it’s aging infrastructure, population growth, or general community resilience.” The firm operates nine offices in New England and New York. The transaction is expected to close in October.

On August 31, Stantec acquired VA Consulting of California. This engineering firm supports infrastructure clients in Southern California and Phoenix, Arizona. Specifically, it develops communities, transportation and water systems.

Stantec now ranks among the biggest

Even before these latest acquisitions, publications Engineering News Record and Building Design & Construction recognized Stantec as one of the largest engineering and architecture companies in the U.S. These acquisitions will add to Stantec’s results in 2015—and for a full year in 2016.

In 2015, Stantec is expected to earn $1.83 a share. This would represent earnings growth of 5.1 per cent. Based on this estimate, the shares trade at a forward price-to-earnings, or P/E, ratio of 16.7 times. But the forward-looking market is focusing on next year. In 2016, Stantec’s earnings are expected to jump by 15.8 per cent. Based on this estimate, the shares trade at a reasonable P/E ratio of 14.4 times.

Stantec Inc. remains a buy for long-term share price gains as well as decent and rising dividends.

 

 

The Investment Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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