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ROAD Gains 41% YTD: Is it Time to Include the Stock in Your Portfolio?
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Shares of Construction Partners, Inc. (ROAD - Free Report) have gained 40.9% in the year-to-date period, outperforming the Building Products - Miscellaneous industry’s 10.1% growth, the Zacks Construction sector’s 13.9% increase and the S&P 500 Index’s 15% rise.
Image Source: Zacks Investment Research
ROAD is benefiting from solid demand trends for private and public work across more than 70 local markets in the six southeast states it operates. Furthermore, accretive acquisitions, project pipelines and the ROAD-Map 2027 goals have been driving the company.
Although ongoing macroeconomic uncertainties and inflated cost structure are headwinds, the aforementioned positives are more than offsetting the negative impacts and supporting ROAD’s growth.
ROAD stock has outperformed industry players like Frontdoor, Inc. (FTDR - Free Report) , Armstrong World Industries, Inc. (AWI - Free Report) and Installed Building Products, Inc. (IBP - Free Report) in the year-to-date period. In the said time frame, FTDR, AWI and IBP have gained 35.6%, 24% and 12.6%, respectively.
Here’s What Makes ROAD Stock a Solid Pick
Ongoing Demand Strength: Construction Partners operates across six southeastern states in the United States, offering construction services and related products for public and private projects. Due to healthy funding programs at the state, local and federal levels throughout the southeastern states, the company witnesses strong demand for public projects. Public investments include a variety of infrastructure projects ranging from highways and bridges to airports, railroads and military bases.
Also, ROAD continues to see areas of strength in the private market for manufacturing, corporate site development, large economic development projects and residential. This sustained demand continues to drive project backlog growth. As of June 30, 2024, the company’s backlog was $1.86 billion, up from $1.59 billion in the year-ago quarter and from $1.79 billion in the prior quarter.
Accretive Buyouts: Construction Partners follows a profitable buyout strategy, which enhances as well as expands its product offerings and geographical reach. Since the beginning of fiscal 2024, it has acquired eight companies. On Tuesday, ROAD acquired John G. Walton Construction Company, Inc., based in Mobile, AL. The acquisition includes a hot-mix asphalt plant, along with crew and equipment, serving the greater Mobile and southwestern Alabama area. This strategic transaction will strengthen the company’s position in the growing Mobile metro area and enable it to pursue further opportunities in Alabama.
During the fiscal third quarter, the company acquired Hudson Paving in Rockingham, NC, and Robinson Paving Company in Columbus, GA. Thanks to these buyouts, it has added two asphalt plants, a greenfield asphalt plant site, a diverse fleet of equipment and vehicles as well as skilled construction professionals to its business portfolio.
ROAD-Map 2027 Goals: During the latter half of 2023, ROAD disclosed certain targets that it expects to achieve by fiscal 2027. The targets included annual revenue growth in the range of 15-20%, with approximately half of the growth being inorganic and the other half being organic, and EBITDA margin expansion in the range of 13-14%.
Given the ongoing opportunities for organic and inorganic growth, Construction Partners seems well-positioned to achieve these targets. During the nine months ended June 30, 2024, revenues increased year over year by 18.1% to $1.29 billion while the adjusted EBITDA margin expanded 170 basis points to 11.2%.
ROAD Crosses 50-Day SMA
Technical indicators imply a continued strong performance for Construction Partners. From the graphical representation given below, it can be observed that ROAD stock crossed the 50-day simple moving average mark on Wednesday, signaling an improving trend. The technical strength underscores positive market sentiment and confidence in its financial health and prospects.
50-Day Moving Average
Image Source: Zacks Investment Research
Estimate Trend Favors ROAD
The Zacks Consensus Estimate for Construction Partners’ fiscal 2024 earnings has trended upward in the past 30 days. The estimated figure indicates growth of 52.1% from a year ago. The consensus estimate for fiscal 2025 earnings has also moved up over the past 60 days, indicating 25.2% year-over-year growth.
EPS Estimate Trend
Image Source: Zacks Investment Research
The company has long-term earnings per share growth rate of 30.9%, which is higher than its industry’s 11.3%.
ROAD Trades at a Premium
Construction Partners is currently trading at a premium to the industry peers on a forward 12-month price-to-earnings (P/E) ratio basis. ROAD’s forward 12-month P/E ratio is 34.66, which is significantly higher than the industry’s 16.27.
Should You Say Yes to ROAD Stock?
From the above-discussed factors, it is clear that Construction Partners is undertaking effective measures and seeking accretive opportunities to meet its Map 2027 goals. The ongoing demand strength for public and private infrastructure and related projects, along with favorable buyout opportunities, bodes well for the company.
ROAD’s trailing 12-month return on equity (ROE) is 13.3%, lower than the industry’s 14.3%. Although its ROE metric is under pressure, ROAD’s performance likely reflects better execution and market share capture than its industry peers, thereby sustaining its growth trajectory in the upcoming period. The company has a VGM Score of A, backed by a Growth Score of A and a Value Score of B.
Furthermore, a higher valuation seems justified, given ROAD’s growth trajectory. The upward EPS revisions indicate further earnings growth and a higher valuation is likely to offer upside potential in the long run.
Image: Bigstock
ROAD Gains 41% YTD: Is it Time to Include the Stock in Your Portfolio?
Shares of Construction Partners, Inc. (ROAD - Free Report) have gained 40.9% in the year-to-date period, outperforming the Building Products - Miscellaneous industry’s 10.1% growth, the Zacks Construction sector’s 13.9% increase and the S&P 500 Index’s 15% rise.
Image Source: Zacks Investment Research
ROAD is benefiting from solid demand trends for private and public work across more than 70 local markets in the six southeast states it operates. Furthermore, accretive acquisitions, project pipelines and the ROAD-Map 2027 goals have been driving the company.
Although ongoing macroeconomic uncertainties and inflated cost structure are headwinds, the aforementioned positives are more than offsetting the negative impacts and supporting ROAD’s growth.
ROAD stock has outperformed industry players like Frontdoor, Inc. (FTDR - Free Report) , Armstrong World Industries, Inc. (AWI - Free Report) and Installed Building Products, Inc. (IBP - Free Report) in the year-to-date period. In the said time frame, FTDR, AWI and IBP have gained 35.6%, 24% and 12.6%, respectively.
Here’s What Makes ROAD Stock a Solid Pick
Ongoing Demand Strength: Construction Partners operates across six southeastern states in the United States, offering construction services and related products for public and private projects. Due to healthy funding programs at the state, local and federal levels throughout the southeastern states, the company witnesses strong demand for public projects. Public investments include a variety of infrastructure projects ranging from highways and bridges to airports, railroads and military bases.
Also, ROAD continues to see areas of strength in the private market for manufacturing, corporate site development, large economic development projects and residential. This sustained demand continues to drive project backlog growth. As of June 30, 2024, the company’s backlog was $1.86 billion, up from $1.59 billion in the year-ago quarter and from $1.79 billion in the prior quarter.
Accretive Buyouts: Construction Partners follows a profitable buyout strategy, which enhances as well as expands its product offerings and geographical reach. Since the beginning of fiscal 2024, it has acquired eight companies. On Tuesday, ROAD acquired John G. Walton Construction Company, Inc., based in Mobile, AL. The acquisition includes a hot-mix asphalt plant, along with crew and equipment, serving the greater Mobile and southwestern Alabama area. This strategic transaction will strengthen the company’s position in the growing Mobile metro area and enable it to pursue further opportunities in Alabama.
During the fiscal third quarter, the company acquired Hudson Paving in Rockingham, NC, and Robinson Paving Company in Columbus, GA. Thanks to these buyouts, it has added two asphalt plants, a greenfield asphalt plant site, a diverse fleet of equipment and vehicles as well as skilled construction professionals to its business portfolio.
ROAD-Map 2027 Goals: During the latter half of 2023, ROAD disclosed certain targets that it expects to achieve by fiscal 2027. The targets included annual revenue growth in the range of 15-20%, with approximately half of the growth being inorganic and the other half being organic, and EBITDA margin expansion in the range of 13-14%.
Given the ongoing opportunities for organic and inorganic growth, Construction Partners seems well-positioned to achieve these targets. During the nine months ended June 30, 2024, revenues increased year over year by 18.1% to $1.29 billion while the adjusted EBITDA margin expanded 170 basis points to 11.2%.
ROAD Crosses 50-Day SMA
Technical indicators imply a continued strong performance for Construction Partners. From the graphical representation given below, it can be observed that ROAD stock crossed the 50-day simple moving average mark on Wednesday, signaling an improving trend. The technical strength underscores positive market sentiment and confidence in its financial health and prospects.
50-Day Moving Average
Image Source: Zacks Investment Research
Estimate Trend Favors ROAD
The Zacks Consensus Estimate for Construction Partners’ fiscal 2024 earnings has trended upward in the past 30 days. The estimated figure indicates growth of 52.1% from a year ago. The consensus estimate for fiscal 2025 earnings has also moved up over the past 60 days, indicating 25.2% year-over-year growth.
EPS Estimate Trend
Image Source: Zacks Investment Research
The company has long-term earnings per share growth rate of 30.9%, which is higher than its industry’s 11.3%.
ROAD Trades at a Premium
Construction Partners is currently trading at a premium to the industry peers on a forward 12-month price-to-earnings (P/E) ratio basis. ROAD’s forward 12-month P/E ratio is 34.66, which is significantly higher than the industry’s 16.27.
Should You Say Yes to ROAD Stock?
From the above-discussed factors, it is clear that Construction Partners is undertaking effective measures and seeking accretive opportunities to meet its Map 2027 goals. The ongoing demand strength for public and private infrastructure and related projects, along with favorable buyout opportunities, bodes well for the company.
ROAD’s trailing 12-month return on equity (ROE) is 13.3%, lower than the industry’s 14.3%. Although its ROE metric is under pressure, ROAD’s performance likely reflects better execution and market share capture than its industry peers, thereby sustaining its growth trajectory in the upcoming period. The company has a VGM Score of A, backed by a Growth Score of A and a Value Score of B.
Furthermore, a higher valuation seems justified, given ROAD’s growth trajectory. The upward EPS revisions indicate further earnings growth and a higher valuation is likely to offer upside potential in the long run.
Based on the overall discussion and the trends of technical indicators, investors can consider adding this Zacks Rank #2 (Buy) stock to their portfolio for now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.