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STRL Stock Near 52-Week High: Here's Why It's Still a Strong Buy
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Sterling Infrastructure, Inc. (STRL - Free Report) has been making waves in the market lately, with its stock trading near a 52-week high. Over the past four trading sessions, the stock hovered above $151 per share, closing at $145.94 on Wednesday — just shy of its 52-week peak of $152.00 reached on Sept. 20.
Shares of STRL have soared 24.4% over the past month, significantly outpacing the 3.7% gain in the Zacks Engineering - R and D Services industry. Additionally, STRL's sector has increased 5.3%, while the S&P 500 has risen 1.9% in the same period. Over the past three years, Sterling’s shares have delivered an astonishing total return of 529.9% compared with the S&P 500's modest return of 27.6%.
This premier U.S. service provider specializing in transportation, civil construction, and e-infrastructure solutions has been capitalizing from continuous tailwinds across key markets (especially in transportation and e-infrastructure), focusing on higher-margin projects, solid backlog level and data center boom.
STRL’s 1-Month Price Performance
Image Source: Zacks Investment Research
Knowing the Driving Factors of Sterling
Strong Market Demand Across Key Segments: Sterling is benefiting from robust demand across its business segments, particularly in the Transportation and E-Infrastructure sectors. The company is positioned to capitalize on the growth opportunities related to both federal infrastructure funding and the ongoing trend of reshoring manufacturing projects. With large-scale transportation projects, such as highways and data centers, Sterling is enjoying a steady pipeline of high-margin contracts.
Additionally, demand for mission-critical data centers is expanding, driven by the increasing reliance on cloud computing, artificial intelligence (AI), and technological advancements. Sterling's involvement in large data centers, which now comprise more than 40% of the company’s E-Infrastructure backlog, reflects the growing need for these facilities.
Diverse and Growing Backlog: A key strength of Sterling is its robust backlog of projects, which provides investors with clear visibility into future earnings. As of the second quarter of 2024, the company’s backlog stood at $2.1 billion, a 21% year-over-year increase. This backlog includes large multi-phase projects in transportation and E-Infrastructure sectors experiencing significant growth. Notably, the E-Infrastructure segment saw 7% growth in backlog, with data centers making up 40% of this figure — a sector expected to continue booming due to demand for AI and cloud computing.
Moreover, Sterling’s pipeline of high-probability future work totals over $500 million, giving the company an edge in securing recurring projects. These future phases are likely to keep adding to the backlog, extending growth visibility through 2026.
Focus on High-Margin Projects: One of the factors driving Sterling’s success is its strategic shift toward high-margin projects. In the first six months of 2024, the company’s operating income grew 23.7%, largely due to focusing on large mission-critical projects like data centers and manufacturing facilities. While smaller commercial and warehouse projects softened, Sterling strategically pivoted its resources to more lucrative markets.
This move allowed the company to significantly expand operating margins in its E-Infrastructure segment, which reached an impressive 21.4% in the second quarter. The company's ability to sustain these margins, coupled with growth in its transportation business, makes Sterling well-positioned to continue its profitability streak.
Federal Infrastructure Spending Tailwinds: Sterling is poised to benefit from ongoing federal infrastructure spending, particularly in its transportation segment, where revenues increased 45.6% year over year in the first six months of 2024. The bipartisan infrastructure bill passed in 2021 continues to fuel demand for transportation-related projects across the United States. As these large-scale projects come online, Sterling’s strong presence in the sector is likely to pay off with substantial revenue growth.
Additionally, the company is halfway through the current federal funding cycle, which gives it access to billions of dollars in opportunities for highways, bridges, and other critical infrastructure projects. With bidding activity at an all-time high, Sterling’s backlog in transportation is set to grow even further.
Strong Cash Flow and Balance Sheet: As of the second quarter of 2024-end, the company's balance sheet reflects a modest level of debt, consisting of $330.3 million in term loan borrowings. Additionally, it holds a $75 million revolving credit facility, which is currently untapped.
The company boasts a cash balance of $540 million, surpassing its total debt. Scheduled repayments on the term loan amount to $26.3 million in 2024, $26.3 million in 2025, and $6.6 million in 2026. With an EBITDA Debt Coverage Ratio of 1.1x, the company maintains a conservative leverage profile.
Although the company does not pay a dividend, it allocates substantial resources to organic growth initiatives, mergers and acquisitions (M&A), and share buybacks.
Fed’s Rate Cut: One of the key challenges Sterling has faced in recent quarters is the slowdown in smaller commercial projects and residential slab work, particularly due to high interest rates. With the latest 50-basis point rate cut, borrowing costs are expected to decrease, potentially leading to a revival in the smaller commercial and residential sectors. The rate cut could further accelerate project starts and bidding activity in sectors like transportation, highways, and E-Infrastructure (data centers and manufacturing facilities).
STRL's Estimate Movement
The company surpassed profit estimates in each of the trailing four quarters, with the average earnings surprise being 17.4%. It is also witnessing northbound estimate revisions for 2024 and 2025. The estimated figure indicates 26.6% growth for 2024.
Image Source: Zacks Investment Research
Sterling’s Stock Not Cheap
STRL’s stock is currently slightly overvalued compared to its industry, as shown in the chart below.
Even the stock is trading higher than companies like Primoris Services Corporation (PRIM - Free Report) , Granite Construction Incorporated (GVA - Free Report) and Dycom Industries, Inc. (DY - Free Report) . PRIM, GVA and DY are trading with forward 12-month P/E multiples of 17.83, 14.35 and 22.4, respectively.
Nonetheless, STRL’s trailing 12-month return on equity of 25.6% is better than its industry average of 19.2%.
Image Source: Zacks Investment Research
Conclusion: Why is STRL Stock Still a Buy?
Despite trading near its 52-week high, STRL stock is still worth considering for investors looking for exposure to the infrastructure sector. Sterling is positioned to capitalize on both the Federal Reserve’s rate cuts and the growing demand for infrastructure projects.
With strong financials, tailwinds from government spending, strategic diversification, reasonable valuation and upward estimate revision, Sterling appears to have plenty of room to grow. The company’s strategic shift toward higher-margin sectors, combined with the potential boost from rate cuts, positions it for continued revenue and earnings growth. With a solid balance sheet, this Zacks Rank #1 (Strong Buy) company offers a compelling investment opportunity for those looking to benefit from the ongoing infrastructure boom and the favorable rate environment. You can see the complete list of today’s Zacks #1 Rank stocks here.
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STRL Stock Near 52-Week High: Here's Why It's Still a Strong Buy
Sterling Infrastructure, Inc. (STRL - Free Report) has been making waves in the market lately, with its stock trading near a 52-week high. Over the past four trading sessions, the stock hovered above $151 per share, closing at $145.94 on Wednesday — just shy of its 52-week peak of $152.00 reached on Sept. 20.
Shares of STRL have soared 24.4% over the past month, significantly outpacing the 3.7% gain in the Zacks Engineering - R and D Services industry. Additionally, STRL's sector has increased 5.3%, while the S&P 500 has risen 1.9% in the same period. Over the past three years, Sterling’s shares have delivered an astonishing total return of 529.9% compared with the S&P 500's modest return of 27.6%.
This premier U.S. service provider specializing in transportation, civil construction, and e-infrastructure solutions has been capitalizing from continuous tailwinds across key markets (especially in transportation and e-infrastructure), focusing on higher-margin projects, solid backlog level and data center boom.
STRL’s 1-Month Price Performance
Image Source: Zacks Investment Research
Knowing the Driving Factors of Sterling
Strong Market Demand Across Key Segments: Sterling is benefiting from robust demand across its business segments, particularly in the Transportation and E-Infrastructure sectors. The company is positioned to capitalize on the growth opportunities related to both federal infrastructure funding and the ongoing trend of reshoring manufacturing projects. With large-scale transportation projects, such as highways and data centers, Sterling is enjoying a steady pipeline of high-margin contracts.
Additionally, demand for mission-critical data centers is expanding, driven by the increasing reliance on cloud computing, artificial intelligence (AI), and technological advancements. Sterling's involvement in large data centers, which now comprise more than 40% of the company’s E-Infrastructure backlog, reflects the growing need for these facilities.
Diverse and Growing Backlog: A key strength of Sterling is its robust backlog of projects, which provides investors with clear visibility into future earnings. As of the second quarter of 2024, the company’s backlog stood at $2.1 billion, a 21% year-over-year increase. This backlog includes large multi-phase projects in transportation and E-Infrastructure sectors experiencing significant growth. Notably, the E-Infrastructure segment saw 7% growth in backlog, with data centers making up 40% of this figure — a sector expected to continue booming due to demand for AI and cloud computing.
Moreover, Sterling’s pipeline of high-probability future work totals over $500 million, giving the company an edge in securing recurring projects. These future phases are likely to keep adding to the backlog, extending growth visibility through 2026.
Focus on High-Margin Projects: One of the factors driving Sterling’s success is its strategic shift toward high-margin projects. In the first six months of 2024, the company’s operating income grew 23.7%, largely due to focusing on large mission-critical projects like data centers and manufacturing facilities. While smaller commercial and warehouse projects softened, Sterling strategically pivoted its resources to more lucrative markets.
This move allowed the company to significantly expand operating margins in its E-Infrastructure segment, which reached an impressive 21.4% in the second quarter. The company's ability to sustain these margins, coupled with growth in its transportation business, makes Sterling well-positioned to continue its profitability streak.
Federal Infrastructure Spending Tailwinds: Sterling is poised to benefit from ongoing federal infrastructure spending, particularly in its transportation segment, where revenues increased 45.6% year over year in the first six months of 2024. The bipartisan infrastructure bill passed in 2021 continues to fuel demand for transportation-related projects across the United States. As these large-scale projects come online, Sterling’s strong presence in the sector is likely to pay off with substantial revenue growth.
Additionally, the company is halfway through the current federal funding cycle, which gives it access to billions of dollars in opportunities for highways, bridges, and other critical infrastructure projects. With bidding activity at an all-time high, Sterling’s backlog in transportation is set to grow even further.
Strong Cash Flow and Balance Sheet: As of the second quarter of 2024-end, the company's balance sheet reflects a modest level of debt, consisting of $330.3 million in term loan borrowings. Additionally, it holds a $75 million revolving credit facility, which is currently untapped.
The company boasts a cash balance of $540 million, surpassing its total debt. Scheduled repayments on the term loan amount to $26.3 million in 2024, $26.3 million in 2025, and $6.6 million in 2026. With an EBITDA Debt Coverage Ratio of 1.1x, the company maintains a conservative leverage profile.
Although the company does not pay a dividend, it allocates substantial resources to organic growth initiatives, mergers and acquisitions (M&A), and share buybacks.
Fed’s Rate Cut: One of the key challenges Sterling has faced in recent quarters is the slowdown in smaller commercial projects and residential slab work, particularly due to high interest rates. With the latest 50-basis point rate cut, borrowing costs are expected to decrease, potentially leading to a revival in the smaller commercial and residential sectors. The rate cut could further accelerate project starts and bidding activity in sectors like transportation, highways, and E-Infrastructure (data centers and manufacturing facilities).
STRL's Estimate Movement
The company surpassed profit estimates in each of the trailing four quarters, with the average earnings surprise being 17.4%. It is also witnessing northbound estimate revisions for 2024 and 2025. The estimated figure indicates 26.6% growth for 2024.
Image Source: Zacks Investment Research
Sterling’s Stock Not Cheap
STRL’s stock is currently slightly overvalued compared to its industry, as shown in the chart below.
Even the stock is trading higher than companies like Primoris Services Corporation (PRIM - Free Report) , Granite Construction Incorporated (GVA - Free Report) and Dycom Industries, Inc. (DY - Free Report) . PRIM, GVA and DY are trading with forward 12-month P/E multiples of 17.83, 14.35 and 22.4, respectively.
Nonetheless, STRL’s trailing 12-month return on equity of 25.6% is better than its industry average of 19.2%.
Image Source: Zacks Investment Research
Conclusion: Why is STRL Stock Still a Buy?
Despite trading near its 52-week high, STRL stock is still worth considering for investors looking for exposure to the infrastructure sector. Sterling is positioned to capitalize on both the Federal Reserve’s rate cuts and the growing demand for infrastructure projects.
With strong financials, tailwinds from government spending, strategic diversification, reasonable valuation and upward estimate revision, Sterling appears to have plenty of room to grow. The company’s strategic shift toward higher-margin sectors, combined with the potential boost from rate cuts, positions it for continued revenue and earnings growth. With a solid balance sheet, this Zacks Rank #1 (Strong Buy) company offers a compelling investment opportunity for those looking to benefit from the ongoing infrastructure boom and the favorable rate environment. You can see the complete list of today’s Zacks #1 Rank stocks here.