Stantec Stock: A Play on Global Infrastructure That’s Looking to Break Higher

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STN Stock Is a Trump Infrastructure Stock with Great Prospects

The second National Infrastructure Week just passed under President Donald Trump and, so far, we have yet to see any concrete policies or spending in this segment.

Nevertheless, infrastructure spending is picking up worldwide, which could benefit a global infrastructure company like Stantec Inc. (NYSE:STN).

While the U.S. has yet to confirm a solid infrastructure spending plan—despite Trump’s suggestion for $1.0 trillion in spending—we are seeing infrastructure spending growth in Europe, Asia (especially China), and other regions.

Stantec appears to be ideally stationed, with over 400 offices on six continents and around 22,000 workers.

Stantec operates a diversified business that deals with many types of infrastructure projects:

  • airports
  • bridges
  • civic
  • commercial development and mixed-use
  • community
  • education
  • government
  • health
  • hospitality
  • industrial buildings
  • mining
  • multi-family residences
  • oil and gas
  • power and energy
  • public safety
  • retail
  • roadways
  • sports and recreation
  • transit and rail
  • water
  • waterpower and dams

Yet, despite good tailwinds and fundamentals, Stantec stock has underperformed the S&P 500, with a decline of 8.9% so far this year and a rise of 13.9% over the past year.

The STN stock price has been trending higher on rising relative strength and moving average convergence/divergence (MACD).

Chart courtesy of StockCharts.com

There is some hesitation, however, with resistance for STN stock at around $27.50 and support at $23.00.

If the stock price can hold and break higher, we could see a break above $30.00.

My Bull Case for Stantec Stock

Stantec’s revenues have been on the rise in four consecutive years, from CA$1.8 billion in 2013 to CA$3.4 billion in 2017, representing a strong compound annual growth rate (CAGR) of 23.1%.

Year Revenue (CA$ Billions)
2013 $1.8
2014 $2.1
2015 $2.4
2016 $3.1
2017 $3.4

(Source: “2017 Annual Report,” Stantec Inc., February 21, 2018.)

There is some hesitation from investors toward Stantec stock because the revenue growth rate is expected to decline, with the revenue forecast for 2018 being CA$3.7 billion (US$2.8 billion) and the forecast for 2019 being CA$3.9 billion (US$3.0 billion). (Source: “Stantec Inc. (STN),” Yahoo! Finance, last accessed May 18, 2018.)

Stantec is consistently profitable, but earnings have been on the decline in three straight years.

The positive earnings are expected to grow to US$1.55 per diluted share in 2018 (versus US$1.39 per diluted share in 2017) and surge to US$1.80 per diluted share in 2019.

The key free cash flow metric is consistently positive, despite declining in 2014 and 2017.

Year Free Cash Flow (US$ Millions) Growth

2013

$222.2

2014

$167.0 -24.8%
2015 $170.4

2.0%

2016

$228.2 33.9%
2017 $204.3

-10.5%

(Source: “Stantec Inc.,” MarketWatch, last accessed May 18, 2018.)

The thing is that cash flow and debt tend to fluctuate more with high-capital-expenditure (CapEx) infrastructure companies, so there is no concern with Stantec stock.

Analyst Take

The underperformance by Stantec Inc. provides a buying opportunity for STN stock, given the positive fundamentals and outlook for the company.