Sterling Infrastructure, Inc. (STRL Quick QuoteSTRL - Free Report) is scheduled to report fourth-quarter 2024 results on Feb. 25, after the closing bell.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

In the last reported quarter, STRL delivered solid results, with earnings ahead of the Zacks Consensus Estimate by 17.3%. Sterling reported strong financial performance for third-quarter 2024, delivering earnings per share (EPS) of $1.97, a 56% increase from a year ago, and achieving a gross profit margin of 22%. However, revenues of $593.7 million missed expectations by 1%. The company’s backlog reached $2.1 billion, with $2.37 billion in combined backlog, offering visibility into future growth. E-infrastructure emerged as a key growth driver, with data center projects representing more than 50% of its backlog and operating margins expanding significantly to 25.8%.

Sterling, a premier U.S. service provider specializing in transportation, civil construction, and e-infrastructure solutions, has an impressive track record of surpassing earnings expectations, exceeding the consensus mark in each of the last four quarters. The average surprise over this period is 21.5%, as shown in the chart below.

Image Source: Zacks Investment Research

How Are Estimates Placed for STRL?

The Zacks Consensus Estimate for the third-quarter EPS has increased to $1.34 over the past 60 days. The estimated figure indicates 3.1% growth from the year-ago reported figure. The consensus mark for revenues is $533.8 million, indicating 9.8% year-over-year growth.

For 2025, STRL is expected to register 8.1% EPS growth from a year ago.

Image Source: Zacks Investment Research

What the Zacks Model Unveils for Sterling

Our proven model does not predict an earnings beat for Sterling for the quarter to be reported. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Earnings ESP: STRL has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Influencing Sterling’s Q4 Performance

Sterling has established itself as a major player in the booming e-infrastructure and transportation markets. The company’s strategic focus on high-margin projects, coupled with strong execution, has led to record earnings growth so far in 2024. With a robust backlog, ongoing federal infrastructure spending, and rising demand for data centers, Sterling appears well-positioned for another strong quarter.

Segment-wise, E-Infrastructure Solutions, STRL's largest and fastest-growing segment, accounted for 45% of third-quarter 2024 revenues. Its customers include Amazon.com, Inc. (AMZN Quick QuoteAMZN - Free Report) , Meta Platforms, Inc. (META Quick QuoteMETA - Free Report) , Walmart Inc. (WMT Quick QuoteWMT - Free Report) and Hyundai Motor Group. It is set to benefit from multi-year capital deployment in data centers, advanced manufacturing, and industrial sectors. Enhanced supply chain dynamics and a focus on large-scale, mission-critical projects will boost sales and margins. Data centers, now 50% of STRL’s E-Infrastructure backlog, play a crucial role in future growth, driven by the demand for AI technology advancements.

Transportation Solutions segment (which accounted for 38% of total third-quarter 2024 revenues) is expected to benefit from strong broad-based demand and margin growth across its entire geographic footprint. The segment is expected to have benefited from robust state and local funding, the Infrastructure Bill's allocation of $643 billion for transportation programs (including $284 billion in incremental funding), and a $25 billion investment in airports over five years.

Sterling’s Building Solutions segment (which accounted for 17% of total third-quarter 2024 revenues) is focusing on concrete foundations for residential and commercial projects. While Sterling’s overall outlook is strong, challenges persist in the residential construction market. Affordability concerns and high interest rates have kept potential homebuyers on the sidelines, limiting demand. While the fourth quarter may still see some softness, Sterling expects a turnaround by early 2025. Houston and Phoenix remain bright spots for potential growth.

Acquisitions have significantly contributed to STRL's growth by expanding its operations and boosting revenues. Strategic investments for profitability and efficient service execution, along with accretive buyouts, are anticipated to have driven substantial third-quarter growth. Additionally, a reduced income tax rate and lower net interest expenses for the rest of the year are expected to have enhanced profitability.

STRL Stock’s Price Performance & Valuation

STRL stock has exhibited a downward movement in the past three-month period and underperformed the Zacks Engineering - R and D Services industry, as you can see below.

Notably, Sterling stock has lost 20% since the DeepSeek AI-related market selloff on Jan. 27, 2025. STRL has already lost 39.7% since its 52-week high of $206.07 on Jan. 22 while trading way below the 50-day or 200-day moving averages, as shown below.

STRL’s 3-Month Price Performance

Image Source: Zacks Investment Research

STRL Stock’s 50-Day & 200-Day Moving Averages

Image Source: Zacks Investment Research

 
Let's assess the value STRL offers to investors at its current levels. Despite a historically strong backlog and AI-driven infrastructure tailwinds, the company’s valuation remains stretched.

Presently, STRL is trading slightly at a premium compared to the industry average, as shown in the chart below. The stock is trading at a forward 12-month P/E ratio of 18.98—higher than the Zacks Engineering - R&D Services industry average of 18.33 and well above its three-year median of 15.24.

STRL is trading beyond historical valuation levels. The stock is still overvalued despite its significant decline.
 

Image Source: Zacks Investment Research

Again, STRL’s trailing 12-month return on equity is still better than its industry average.

Image Source: Zacks Investment Research

Investment Thoughts: Buy, Sell or Hold STRL Stock?

As the infrastructure sector continues to grow, Sterling stands to benefit significantly due to its strong industry reputation and extensive experience with top-tier clients. The current capacity for data centers falls far short of meeting the rising demand driven by artificial intelligence and other emerging technologies.

Despite stock struggles, STRL is positioned to benefit from continued AI-related infrastructure spending, with Amazon and Meta increasing capex to approximately $105.2 billion (with a run rate of $26.3 billion for each of 2025 quarters) and to $60-65 billion (from $39.23 billion in 2024) respectively, for 2025. Also, President Donald Trump recently unveiled the Stargate Project, a $500 billion, four-year initiative aimed at developing artificial intelligence infrastructure. This move is expected to drive further demand for AI data center construction.

However, given STRL’s heavy reliance on data center and infrastructure contracts from big tech companies, any perceived slowdown in AI-related capital expenditures may trigger a strong selloff. Sterling remains a strong company with a promising future, but its stock is still expensive despite recent losses.

Owing to market volatility and expensive valuation, investors may wish to wait for clearer signs of performance stability and favorable market conditions, particularly monitoring the upcoming earnings call on Feb. 25, before considering an investment.