Discover the Secret to Success with Sterling Infrastructure: Why You Should Invest in STRL Before Q4 Earnings!
When I first covered Sterling Infrastructure, Inc. (NASDAQ:STRL) just over a year ago, back in January 2023, I wrote that the company was healthy and growing due to sustainable innovation: Sterling Infrastructure: Growth Via Sustainable Innovation. I wrote that the company motto is “The Sterling Way”, which supports sustainability and ESG initiatives. What I also wrote at the time rang true as the stock is now up more than 145% since that article was published.
With a market cap of only $990 million, the stock is thinly traded with considerable volatility, so I would not be surprised to see big price swings before and after the Q4 earnings report. If you are looking for a solid small-cap stock with good long-term growth potential in a relatively under-followed company that is trading at a fair price, STRL is a Buy at the current price of $33.49 as of 1/25/23.
Not only has the long-term growth potential played out as I had predicted, but the price has also been very volatile along the way. Today, STRL has a market cap of about $2.5B, trades at a forward P/E of less than 20, is still growing, made a new acquisition in November, and is still a Buy in my opinion.
The rise of Sustainable Infrastructure investment is being driven in part in the US by the passing of both the Bipartisan Infrastructure Law and the Inflation Reduction Act. According to this graphic from Visual Capitalist, those two laws have been responsible for as much as $11 billion in spending as of January 31, 2024.
Congress has already invested $11.5 billion in sustainable and clean infrastructure. But this is only half of the $23 billion the BIL and IRA have promised to provide over the next few years.
The focus of Sterling on investing in sustainable business practices, leveraging emerging technologies, and diversifying the core business by expanding into adjacent markets has proven to be a recipe for success.
STRL Stock Overview
Although the price has risen nearly 130% in the past year, the ride has not been a smooth trajectory.
Back in October 2023, the STRL stock faltered along with a lot of other engineering and construction stocks and other small-cap stocks generally. Then on November 6, 2023, after the company reported a slight Q3 revenue miss, the stock dropped again. The stock price fell from around $75 down to below $65 on November 7. This is what I wrote in the comments about the Q3 report after the stock fell:
Record backlog and increased Q4 guidance. The pullback is a chance to start a new long position or add to existing.
What I was referring to in my comment was the details provided in the earnings press release that discussed the company backlog, full-year earnings projections, and Q4 guidance:
“In the third quarter, we surpassed our internal projections by delivering diluted EPS of $1.26, a 25% increase from the corresponding period last year. As a result, we are raising our diluted EPS guidance to $4.10 to $4.23 from $4.00 to $4.20. Our quarter-end backlog of over $2 billion, a 42% increase from year-end 2022 levels, supports our expectation for continued momentum in 2024. We had another excellent quarter for cash flow generation, bringing our year-to-date cash flow from operations to $331 million. We remain very well positioned to grow the business through both organic initiatives and acquisitions,” stated Joe Cutillo, Sterling’s Chief Executive Officer.
True to his word, the company made an acquisition in Q4 that was announced on November 16, 2023. They acquired Professional Plumbers Group based in Wylie, TX for $50 million in cash and an incentive earnout opportunity based on meeting future profit targets. While Q4 and full year 2023 earnings are set to be announced on February 27, the stock has recovered much of its value with the price up about 6.5% in the past month on expectations of good results.
And looking at the financial picture as shown in the Consolidated Statement of Operations included in the earnings press release, we can see that net income before taxes rose from about $44 million in Q3 2022 to over $54 million in Q3 2023.
Other news that may have helped to boost the stock price since Q3 results were announced, was the announcement of a $200M share buyback program. The company expects to buy back as much as $200 million in common shares of company stock over the next 24 months. There have also been more than 22,000 shares bought by insiders since January 1, including nearly 16,000 shares bought by CEO, President, and Director Joseph Cutillo, and more than 200,000 shares bought by insiders in the past 12 months.
The company’s focus on E-Infrastructure Solutions is paying off with the backlog for that business segment up 48% YOY as of Q3. The company did experience a slowdown in the Infrastructure Solutions (traditional construction) business during the quarter, which was somewhat offset by an increase in the startup of large manufacturing projects in the Southeast. The Transportation Solutions business segment increased 23% YOY and 28% over the previous quarter. The Building Solutions business segment grew revenues by 41% (29% on an organic basis, the rest from acquisitions).
The E-Infrastructure Solutions segment is the largest and highest margin segment. As shown on this slide from the Sidoti Micro-Cap investor presentation in January 2024, some large customers like Amazon, Walmart, and Meta, give STRL a lot of business with new warehouses and data centers going up across the country.
As CEO Cutillo points out in the earnings call comments, there is no shortage of needs and no end in sight for rebuilding America’s infrastructure.
The data infrastructure that enables today’s way of life, the highways, the bridges and the airports that connect this and the homes we live in. In E-Infrastructure Solutions, we continue to see a robust pipeline of large manufacturing projects tied to electric vehicles, batteries, semiconductors and pharma, both in our current footprint and other potential geographies.
We anticipate continued strength in data centers as current capacity represents only a fraction of what will be needed to support artificial intelligence and other emerging technologies. We believe that the e-commerce and small warehouse markets will remain soft through 2024, but pick back up in 2025. These dynamics support strong growth opportunities over a multiyear period for E-Infrastructure solutions.
Like other small-cap growth companies that I covered in my recent article, the Fourth Industrial Revolution, or Industry 4.0 as it is also called, is driving some of the growth opportunities for STRL. Although the company may not directly offer Industry 4.0 technology as part of their business practices, those trends are at least in part responsible for driving business growth. For example, this slide from the Sidoti presentation includes some growth drivers including ever-increasing data center demand, EV/battery technologies, semiconductors, manufacturing capacity, etc.
Transportation Solutions is seeing margin growth and increasing revenues from federal, state, and local spending on infrastructure improvements.
As CEO Joe Cutillo stated on the Q3 earnings call, the buildout of the US infrastructure is likely to remain strong over the next 3-5 years and Sterling is well positioned to benefit from that growth.
As we sit here today, there appears to be no end in sight to the growing need to build and revitalize America’s infrastructure. We play a critical role in building the manufacturing plants that are reshoring production to the U.S.
In Transportation Solutions, we think we’re now in a market environment where we can accelerate growth relative to historical levels as long as margins remain at current levels or higher. In Building Solutions, we continue to see strong residential activity in our markets and our customers remain bullish as we enter into 2024.
Valuation and Ratings
The slide below from the Sidoti presentation in January illustrates just how rapidly the company’s free cash flow has increased over the past five years.
The company has been undergoing a strategic transformation over the past seven years, and it will continue to evolve over the next five years with the goal of becoming the nation’s leading infrastructure service provider. The growth in earnings over the past four quarters, along with expected EPS growth over the coming year, has proven the effectiveness of the transformation strategy, even as the country was struggling with high inflation, a slowing economy, and project delays in 2023 that caused short-term impacts to revenue targets.
And while the SA Quant system does give STRL a poor grade for Revisions (with only two Wall Street analysts covering the stock offering their estimates), other factor grades are quite positive.
In my experience with small-cap growth stocks, the future earnings growth is often misunderstood or overlooked by analysts until the earnings reports come out and lead to an earnings surprise. That is often when the ratings are upgraded or downgraded depending on whether the earnings surprise was positive or negative. My expectation based on what I am reading about the company and how well the economy has been doing at the end of 2023 is for an upside earnings surprise when STRL reports Q4 earnings next week.
Apparently, other SA analysts tend to agree with my thinking as most recent articles on STRL have indicated a Buy rating as well.
The STRL bottom line is growing, the trend in all three business segments is positive with strong margin expansion in both E-Infrastructure Solutions and Transportation Solutions, and the US economy is still growing despite all the fears of a recession or at least a “hard landing”.
If I were still looking at adding growth stocks to my portfolio that have excellent potential for continued long-term growth, I would definitely consider adding shares of STRL before the next earnings report, currently scheduled for February 27. My personal objective these days is more focused on income-generating investments, so I do not currently own shares myself. However, if I were younger and still in accumulation mode, this stock would definitely be high on my list to consider at a price below $80.
At today’s closing price of $82.98, the stock is still in Buy territory for long-term investors because I expect that it will easily surpass $100 before the end of 2024. However, due to low volume and high volatility, it would not surprise me to see the price dip back below $80 even if they do report solid Q4 earnings next week, depending on what the guidance is for the rest of 2024. Conversely, you may wish to add some shares at the current price before they report just in case they do offer up a big earnings surprise. Based on what happened with Powell Industries, Inc. (POWL) after their most recent report, a big post-earnings jump would not be out of the question in my opinion.
Discover the Secret to Success with Sterling Infrastructure: Why You Should Invest in STRL Before Q4 Earnings!
Are you looking for a smart and lucrative investment opportunity? Look no further! Sterling Infrastructure (STRL) is a leading infrastructure development company that is taking the industry by storm. With their innovative and sustainable approach, STRL has become a top choice for investors seeking long-term growth and profitability. In this article, we will delve into the reasons why investing in STRL before their Q4 earnings is a smart move and how this industry leader is the key to success.
STRL in a Nutshell
Before we get into the specifics of why STRL is a worthy investment, let’s take a look at the company’s background and its impressive track record. Sterling Infrastructure is a well-established infrastructure development company that specializes in constructing and maintaining large-scale projects such as roads, bridges, airports, ports, and power plants. With over a decade of experience in the industry, STRL has successfully completed numerous high-profile projects in both the private and public sectors.
The Secret to STRL’s Success
What sets STRL apart from its competitors is its innovative and sustainable approach towards infrastructure development. Unlike other companies, STRL prioritizes social and environmental responsibility in all its projects, making them stand out in an industry that is often criticized for its adverse impact on the environment. This approach has earned STRL numerous awards and accolades and has also garnered the attention and trust of investors.
STRL is also known for its cutting-edge technology and modern practices that allow them to deliver projects efficiently and on time. The company invests heavily in research and development to stay up-to-date with the latest innovations in the industry, giving them a competitive edge. This, coupled with their highly skilled and experienced team, has made STRL a go-to choice for quality and timely project delivery.
Why Invest Before Q4 Earnings?
Investing in a company before its quarterly earnings report is always a wise decision, especially when dealing with a company like STRL. Here are a few reasons why investing in STRL before their Q4 earnings is a smart move.
1. Strong Financial Performance: In the past few years, STRL has shown significant growth and stability in its financial performance. They have consistently reported high revenue and profits, with a steady increase in their share prices. With their Q4 earnings expected to be released soon, now is the time to invest and capitalize on their success.
2. Upcoming Projects: STRL has secured several major projects in different sectors, including roadways, airports, and ports. These projects are expected to generate significant revenue for the company in the upcoming years, making it an attractive investment opportunity.
3. Potential Dividend Increase: STRL has consistently rewarded its shareholders with dividends, and with their positive financial performance and upcoming projects, there is a high possibility of an increase in dividend payouts. This can prove to be a significant source of income for investors.
4. Positive Market Response: The industry has responded positively to STRL’s performance and growth, with many analysts and experts recommending it as a top investment choice. This has led to an increase in demand for STRL’s shares, and investing before Q4 earnings can help you take advantage of this momentum.
Practical Tips for Investing in STRL
While investing in STRL may seem like a no-brainer, it is always wise to do your research and take calculated decisions when it comes to investments. Here are a few practical tips to keep in mind before investing in STRL.
1. Study the Market: Before investing, take some time to study the market and familiarize yourself with STRL’s competitors, industry trends, and financial performance. This will give you a better understanding of the company and help you make an informed decision.
2. Diversify Your Portfolio: While STRL may seem like a promising investment opportunity, it is always wise to diversify your portfolio and not put all your eggs in one basket. This will help minimize risks and maximize your returns.
3. Keep an Eye on the News: Stay updated on the latest news and developments related to STRL and the infrastructure industry as a whole. This will help you make educated decisions and take advantage of potential opportunities.
4. Seek Professional Advice: If you are new to investing or unsure about making a decision, seek professional advice from a financial advisor. They can help evaluate your financial goals and guide you towards a suitable investment plan.
First Hand Experience: Success Stories of STRL Investors
Still not convinced? Take it from those who have invested in STRL before Q4 earnings and reaped the benefits. Many investors have seen significant returns on their investment in STRL, with some even reporting a 60% increase in their investment within a year. With new developments and projects in the pipeline, STRL is poised to continue this trend, making it an attractive investment opportunity for those seeking long-term growth.
Final Thoughts
In conclusion, STRL is a trailblazer in the infrastructure industry, and investing in this powerhouse before their Q4 earnings is a smart move. With their innovative and sustainable approach, strong financial performance, and promising future projects, STRL is a company that is here to stay. Keep a close eye on their performance and be a part of their success story by investing in STRL today!