NV5 Global Inc: Why This Stock Could Surge in COVID-19 Recovery

nv5 stockNV5 Global Inc Could Rally on Infrastructure Spending

America and the rest of the world are going through one of the worse periods of economic contraction in history, triggered by the pandemic. While the full impact is not yet known, we know it will be bad. But, there’s one area that should pick up steam following a downturn…and that’s infrastructure.

Every country spends big on infrastructure as part of their fiscal policy to jump-start economies. This gives infrastructure players like NV5 Global Inc (NASDAQ:NVEE) intriguing upside opportunities, especially given that NVEE stock in particular is down 30% over the past year.

NV5 Global is a diversified infrastructure play providing engineering and consulting services to the public and private sectors. NVEE has a vast global footprint, with over 100 offices worldwide.

In my view, there is an opportunity for a strong bounce given NVEE stock is nearly 50% off of its record $96.70 per share in November 2018.

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NV5 Global stock surged in 2018 on hopes that President Trump would produce his $1.0-trillion infrastructure plan. That didn’t happen.

Chart courtesy of StockCharts.com

The stock rebounded nicely from the March depths. Eventually, you should look for NV5 Global Inc to target $55.00, $62.50, $70.00, and much higher depending on whether we see a surge in infrastructure spending.

My Fundamental Bull Case for NVEE Stock

A look at the past five years shows strong fundamental growth for NV5 Global, which the market appears to be under-appreciating.

Revenues have increased at strong double digits in each of the past five years to a five-year high of $508.9 million in 2019.

The compound annual growth rate (CAGR) during this time was an impressive 34.6%.

Fiscal Year Revenue (Millions) Growth
2015 $154.7 42.70%
2016 $233.9 44.80%
2017 $233.0 48.70%
2018 $418.1 25.50%
2019 $508.9 21.70%

(Source: “NV5 Global, Inc.” MarketWatch, last accessed September 17, 2020.)

The decline in the revenue growth rate over the last two years is not a big concern, as NVEE will see its growth rate normalize.

And while you’d expect a negative impact from the pandemic, NV5 Global is actually estimated to ramp up revenues by 27.8% to $650.4 million this year, followed by a smaller 4.8% to $681.5 million in 2021. (Source: “NV5 Global, Inc. (NVEE),” Yahoo! Finance, last accessed September 17, 2020.) Of course, increased infrastructure spending could up the estimates.

NV5 Global delivered positive earnings before interest, taxes, depreciation, and amortization (EBITDA), profits, and free cash flow (FCF) from 2015 to 2019.

Fiscal Year EBITDA (Millions) Growth
2015 $18.2 73.20%
2016 $26.0 42.70%
2017 $40.3 54.80%
2018 $54.8 36.00%
2019 $67.9 23.80%

(Source: MarketWatch, op. cit.)

Better yet, there was growth in each year, except that profits based on generally accepted accounting principles (GAAP) fell in 2019. The past year saw NV5 Global report record EBITDA and FCF.

Fiscal Year GAAP Diluted EPS Growth
2015 $1.18 35.60%
2016 $1.22 3.40%
2017 $2.23 82.80%
2018 $2.33 4.70%
2019 $1.90 -18.70%

(Source: MarketWatch, op. cit.)

On an adjusted basis, NV5 Global made $3.19 per diluted share in 2019. It’s expected to report $3.25 per diluted share this year before surging to $4.44 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

Also impressive is the five consecutive years of double-digit growth in FCF to a record $37.28 million in 2019.

Fiscal Year FCF (Millions) Growth
2015 $5.4 802.70%
2016 $14.2 164.90%
2017 $15.4 8.10%
2018 $32.6 111.60%
2019 $37.3 14.50%

(Source: MarketWatch, op. cit.)

Analyst Take

I’m bullish on the tailwinds in infrastructure spending coming out of the dismal global economic contraction. NV5 Global worldwide presence makes the stock a play on the global economy.

Insiders at NVEE have been buying more NV5 Global stock than selling. There was a net 13,346 shares of NV5 Global Inc added over the last six months. (Source: Yahoo! Finance, op. cit.)

NV5 Global stock trades at around 16.61 times its consensus EPS for 2021, versus around 22 times for the S&P 500. The price/earnings-to-growth ratio of 0.83 is attractive, suggesting an opportunity to buy NVEE stock at a reasonable price.