Yahoo Finance Reasons to Add Construction Partners (ROAD) to Your Portfolio
Construction Partners, Inc. ROAD has been riding high on the back of solid demand for infrastructure services throughout end markets in both the private and public sectors, consistent execution of its business model, and a growth strategy that defies labor, inflation and supply-chain challenges. Shares of this vertically integrated civil infrastructure company have gained 29.8% over the past three months against the industry’s 6.3% decline. Also, it has outperformed the S&P 500’s 2.7% decline in the said period.
Notably, earnings estimates for 2022 and 2023 have been upwardly revised by 27.3% and 10.7%, respectively, over the past 30 days, suggesting that sentiments on Construction Partners are moving in the right direction. Further, ROAD’s has a long-term earnings growth rate of 36.9%, making us confident of its inherent strength. Let’s delve deeper and find out what’s fueling this Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Growth Drivers
Higher Infrastructural Spending
Construction Partners and other construction service providers are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security, and a potential super-cycle in global supply-chain investments. A significant boost in infrastructural and public construction spending to underscore the need for rebuilding the nation’s deteriorating roads and bridges, and funding new climate resilience and broadband initiatives is a boon for ROAD.
Strong Growth Opportunities
Construction Partners’ organic and inorganic growth opportunities in the attractive Southeastern U.S. road construction/repair market are expected to help the company generate higher revenues. Revenues grew 43.8% year over year in the first nine months of fiscal 2022. The company’s fiscal third-quarter revenues grew 45.3% from the last year, leading to 29.7% growth in adjusted EBITDA.
The growth was fueled by strong operational performance and effective project execution throughout the markets served, via effectively utilizing hot mix asphalt plants and equipment, and continued strong demand for infrastructure services throughout end markets ROAD serves in both the private and public sectors. The company’s growth for the quarter consisted of approximately 25% organic revenues and 20% from the recent acquisitions.
Project backlog was $1.33 billion at Jun 30, 2022, reflecting an increase from $822.9 million at Jun 30, 2021 and $1.28 billion at Mar 31, 2022. The company’s healthy backlog is suggestive of strong revenue generation in the future.
Construction Partners has solid prospects, as evident from the Zacks Consensus Estimate of 26 cents earnings per share for the current quarter, indicating 73.3% year-over-year growth. Although the company’s earnings in fiscal 2022 are expected to show 7.7% growth, the same in fiscal 2023 is likely to grow a whopping 98.8% from the prior-year period.
Robust Acquisitions
Construction Partners has been bolstering inorganic growth and market expansion over the last few quarters. In August 2022, ROAD announced the acquisition of Southern Asphalt, a bolt-on to its South Carolina platform King Asphalt. This expands ROAD’s footprint into the dynamic Myrtle Beach metro area.The company has also added two hot-mix asphalt plants and more than 200 employees serving an area that is considered as the fastest growing markets in the nation, providing opportunities to bid on an attractive mix of public and commercial projects.
Upbeat View
Given solid top-line revenue performance in the third quarter, a record-high backlog and a strong project demand environment, ROAD has raised fiscal 2022 guidance. Revenues are expected in the range of $1.25 billion to $1.28 billion compared with $1.15-$1.20 billion expected earlier. Net income is now expected in the range of $17.5 million to $23.2 million versus an earlier projection of $14.5-$25.3 million. Adjusted EBITDA is now expected in the range of $108-$117 million versus $105-$120.3 million of the earlier projection.
Other Key Picks
Arcosa, Inc. ACA, currently sporting a Zacks Rank #1, is a manufacturer of infrastructure-related products and services, serving construction, energy and transportation markets.
ACA’s expected earnings growth rate for 2022 is 7.8%. The Zacks Consensus Estimate for current-year earnings has improved 13.7% over the past 30 days.
United Rentals, Inc. URI, presently sporting a Zacks Rank #1 company, has been benefiting from a broad-based recovery of activity across end markets served. Also, higher margins from rental revenues and used equipment sales are added benefits.
The consensus mark for URI’s 2022 earnings rose to $31.73 per share from $31.03 in the past 30 days. The estimated figure suggests 43.8% year-over-year growth.
Gibraltar Industries, Inc. ROCK, currently carrying a Zacks Rank of 2, is benefiting from its three-pillar value creation strategy, the strong housing market and solid demand for legacy and TerraSmart businesses.
ROCK’s expected earnings growth rate for 2022 is 19.4%. The Zacks Consensus Estimate for current-year earnings has increased to $3.32 from $3.30 per share over the past 30 days.
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