Stifel analyst Ian Gillies remains “positive” on the organic revenue growth prospects for Canadian engineering and construction firms, believing the spending outlook for customers will bring “above-trend” gains through 2025.
“Growth for these companies moving forward is likely to be propelled by large sums of government infrastructure funding being released through multi-year funding programs across key OECD geographies,” he said. “More specifically, many of these government programs are expected to last half a decade or longer. Conversely, there are still uncertainties around a potential recession in 2024/2025, which could reduce private spending. The likelihood of a hard landing has receded from this time last year given better-than-expected macroeconomic data and E&C firms demonstrating robust backlogs. Therefore, we remain optimistic on the outlook for the companies in our coverage.
“Given the magnitude of the funding in the U.S., companies with meaningful U.S. exposure should generate higher organic growth in 2024/2025. Notably, we expect Badger to lead the group of companies in this report with low-double-digit organic growth (2024: 12.8 per cent; 2025: 11.1 per cent) given U.S. exposure of 85 per cent. For the engineering firms, we forecast STN’s 24/25 organic revenue growth at 8.1 per cent and 6.9 per cent and WSP at 6.8 per cent and 5.9 per cent. We expect organic revenue growth for the more volatile construction companies (Aecon and Bird) to fare better than engineering companies, but margin performance is much less certain.”
After updating his 2024 estimates and introducing his 2025 forecast, Mr. Gillies raised his targets for stocks in his coverage universe.
“Stantec remains our Top Pick, while we believe Badger remains a torquey and attractive way to play these trends,” he said.
Mr. Gillies’s changes are:
WSP Global Inc. (“buy”) to $210 from $200. Average: $204.21.
Analyst: “High-quality earnings and top-tier management, while offering a 23-25 EPS CAGR of 14.2 per cent. The company’s U.S. exposure is lower than Stantec, valuation is slightly more expensive (2025 P/E of 21.9 times) and ROE/ROCE slightly lower than Stantec.”