Construction and engineering offices with ongoing infrastructure investments on a growth path
Infrastructure includes (but is not limited to) roads, railways, airports, public transport and other major projects. As part of President Biden’s “Build Back Better” agenda, the Infrastructure Investment and Jobs Act focuses on investing in physical infrastructure. The Senate passed this bipartisan bill with 69 votes to 30, but the House of Representatives will not pass legislation until the Senate passes a separate $ 3.5 trillion budget resolution that includes priorities such as immigration and childcare.
This package provides for $ 550 billion in new spending over the next five years. The expenses are mainly financed by unspent emergency funds for the coronavirus pandemic as well as increased taxes on cryptocurrencies. The Congressional Budget Office (CBO) estimates the plan will increase projected deficits by about $ 256 billion over the next decade.
The goals of this law include improving and modernizing transportation, repairing roads and bridges, reducing CO2 emissions (investing in electric vehicles), improving internet availability and providing clean drinking water to 10 million families and disadvantaged communities.
Classification of construction and engineering stocks with the A + Stock Grades of AAII
When analyzing a company, it is helpful to have an objective framework that allows you to compare companies in the same way. This is one of the reasons AAII created the A + Stock Grades, which rate companies based on five factors that have been proven to identify market-leading stocks over the long term: value, growth, momentum, earnings estimate revisions (and surprises), and quality.
Using A + Stock grades, the following table summarizes the attractiveness of three construction and engineering titles – Granite Construction, Installed Construction Products and MYR Group – based on their fundamentals.
AAII’s A + Stock Grade summary for three construction and engineering stocks
American Association of Individual Investors
What the notes reveal
operates in the USA as an infrastructure company and manufacturer of building materials. The company operates in the transportation, water, specialty products and materials segments.
The transport segment deals with the construction and rehabilitation of roads, road maintenance, bridges, railway lines, airports and ports. The water segment focuses on water-related construction and water management solutions as well as services for rainwater remediation. The specialty segment builds various complex projects including infrastructure / site development, mining, public safety, tunnel and energy projects; and takes on bid-build, design-build and construction contracts. The Materials segment focuses on the production of aggregates, asphalt and construction-related materials as well as products for sanitary and rainwater remediation, such as on-site cured pipe felts and fiberglass-based lining pipes. The company serves federal authorities, state traffic offices, local traffic authorities, district and city building authorities, retailers, homeowners, farmers, brokers and private owners of industrial, commercial and residential locations.
The company has been fortunate to win many contracts, particularly in the western United States. These contracts include millions of dollars in the refurbishment or rehabilitation of highways, airports, interchanges and roads, with most of the projects awarded being in the transportation and specialty segments. Committed and Awarded Projects (CAP) increased $ 280 million year over year, helping Granite Construction generate $ 964 million in revenue that was dominated by $ 525 million transportation revenue.
Last month, the consensus earnings estimate for the third quarter rose from $ 0.88 to $ 0.944 per share based on three revisions; two revisions up and one down.
Granite Construction has a momentum grade of B based on its momentum score of 76 and a weak growth grade of D. Granite Construction has a dividend yield of 1.3%.
Installed construction products (IBP) offers the installation of insulation, sealing, fire protection, fire protection, garage doors, rain gutters, blinds, cabinet shelves and mirrors, shower doors and other products for the new housing market in the USA Installation of sealants and sealants in the commercial and private sector for basements, Crawl spaces and attics as well as moisture protection systems.
The market is uncertain due to rising housing costs. The supply chain for construction products is still tight, which affects the ability to purchase certain materials. However, the company posted record sales, net income, and earnings per share in the second quarter compared to the year-ago quarter. The company acquired a Colorado company that installs drywall, frames, ceiling tiles, and fire protection for commercial customers, as well as a Louisiana-based mirror and glass installation company within the neighborhood.
The earnings estimate revisions give an indication of what analysts think of a company’s near-term prospects. The company has a rating of C, which is considered neutral. The grade is based on the statistical significance of the last two quarterly earnings surprises and the percentage change in the consensus estimate for the current financial year in the last month and in the last three months.
Installed construction products have a D rating based on their 61 rating, which is considered expensive. The company’s value score ranking is high on several traditional valuation metrics, with a score of 72 for price to free cash flow ratio, 28 for shareholder return, and 40 for price to sales ratio (remember, the lower the score the better for the value). Investing successfully in stocks means buying at low prices and selling at high prices, so stock valuation is an important aspect of stock picking.
The value grade is the percentile rank of the average of the percentile ranks of the above valuation metrics together with the price / earnings, price / book value and company value / Ebitda ratios.
Installed Building Products has a Momentum Grade of C based on its Momentum Score of 52. This means it ranks in the middle of all stocks for its weighted relative strength over the past four quarters. The weighted relative strength rank for four quarters is the relative price change for each of the last four quarters.
MYR group (MYRG) is a holding company that provides electrical engineering services through its subsidiaries in the United States and Canada. It operates in two main segments: Transmission & Distribution (T&D) and Consumer & Industrial (C&I).
The T&D segment offers a range of services for electrical transmission, distribution and substation systems, including design, engineering, procurement, construction, modernization, maintenance and repair. It maintains high-voltage lines and substations as well as underground and above-ground low-voltage distribution systems. This segment serves as the prime contractor for customers such as investor-run utilities, government-funded utilities, private developers, independent power producers, independent transmission companies, industrial property owners, and other contractors. The C&I segment offers services such as planning, installation, maintenance and repair of commercial and industrial lines as well as the installation of transport networks, bridges, carriageways and tunnel lighting. This segment offers its services for airports, hospitals, data centers, hotels, stadiums, convention centers, renewable energy projects, production plants, treatment plants, wastewater treatment plants, mining plants as well as transport control and management systems.
The company reported record sales and net income of $ 650 million and $ 21 million, respectively, compared to the same quarter last year. Several market drivers offer future growth opportunities, including grid modernization, electrification and clean energy. The MYR Group focuses on strategies for building customer relationships, innovative practices and exploiting market opportunities.
The MYR Group has an average growth rate A + of B. The growth rate takes into account both the short-term and the long-term historical growth in sales, earnings per share and operating cash flow.
The company saw strong sales growth over the past year. Revenue for the three-month period ended June 30, 2021 grew 26.7% year over year to $ 650 million, while diluted earnings per share increased 55.2%. MYR Group does not currently pay a dividend.
A higher quality stock has characteristics associated with upside potential and reduced downside risk. Backtesting the quality grade shows that stocks with higher quality grades on average outperformed stocks with lower ratings between 1998 and 2019.
The MYR Group has a quality level of A and thus belongs to the top group of all stocks listed in the USA.
The quality grade A + is the percentile rank of the average of the percentile ranks of return on investment (ROA), return on investment (ROIC), gross profit to assets, repurchase yield, change in total liabilities to assets, provisions, Z doubling of prime bankruptcy risk (Z) score and F score . The score is variable, ie it can take into account all eight measures or, if one of the eight measures is not valid, the remaining valid measures. However, in order to receive a Quality Score, stocks must have a valid (non-zero) measure and a corresponding ranking for at least four of the eight quality measures.
The company ranks high for return on investment and F-score, ranking in the 81st and 86th percentiles of all US stocks. In terms of the change in the repurchase yield, however, it does poorly and is in the 50th percentile.
MYR Group has a momentum rating of A based on its momentum score of 85.
The stocks that meet the criteria of the approach do not constitute a “recommended” or “buy” list. It is important to perform due diligence.
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