Infrastructure
8 Infrastructure Giants Could Continue to Bring Upside for Investors
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As the end of 2017 approaches, there are some serious reflections that must be made. The stock market indexes were all up well into the double-digits for percentage gains, and the Dow’s surge beyond 23,000 looks like 25,000 might be in the cards a year from now. Tax reform has taken center stage in Washington, D.C., and an outright repeal of Obamacare has taken a back seat. With the passage of a new budget, many investors, taxpayers and workers are going to wonder what ever happened to those great bipartisan promises from the 2016 election about the billions of dollars to be targeted toward infrastructure investing.
24/7 Wall St. was quick to jump on the infrastructure bandwagon in 2016, outlining some would-be winners regardless of who would have won the 2016 presidential election. Half of the country may disagree or have varying views with the other half of the country about taxes and health care. Still, it goes without saying that our great nation with the best economy in the world has an ailing infrastructure that is holding back growth. The poor grade of the U.S. infrastructure even threatens the economy and the economic competitiveness in the decades ahead.
Many issues have driven infrastructure shares after the 2016 elections. Then in 2017, the market drove continued interest in many of the infrastructure giants. Then came the repairs from hurricane damage in Texas, Louisiana, Florida, Puerto Rico and other locations.
Investors have to consider things in a different light than other groups. Some infrastructure players have had such explosive gains that their shares may look overvalued in late 2017. What should stand out now is that the United States needs more than $800 billion in infrastructure spending soon, and that figure could rise into the trillions if you measure it over the next two or three decades.
Investing in infrastructure has proven to bring some disappointments along with rewards. Two of the post-election winners saw their shares get lots of attention, only to crash and burn despite the great opportunities they could have had. Two such names have been featured at the end of this article.
Here 24/7 Wall St. features several potential infrastructure winners for 2018 and beyond. Most of these companies will have to get some extra business out of governmental and private sector orders ahead. Additional color has been added on each company, and the consensus analyst target prices refer to the mean targets on each company issued by Thomson Reuters.
One special note should be made during earnings season. Some of these companies have reported earnings already, while others have yet to report at the time this was written. These are not meant to be barometer or predictions around how each company will be treated going into and immediately after their respective earnings reports. After all, these are generally implied to be multiyear beneficiaries of infrastructure spending ahead. Promises out of Washington and local governments often fail to materialize, and sometimes governments and industries do not make their needed infrastructure investments until after a disaster forces them to.
24/7 Wall St.AECOM
This top provider of architecture and engineering design services in the United States and abroad operates in three segments: Design and Consulting, Construction, and Management. AECOM (NYSE: ACM) services the transportation, environmental and energy sectors. It also serves key infrastructure projects such as highways, airports, bridges, wastewater facilities and power transmission and distribution. If infrastructure spending as a whole is growing, AECOM is likely in the major infrastructure investing cross-hairs. Its shares have sputtered for much of 2017, with a share price of $35.29 being lower than the $37.82 when it was featured in early 2017. That being said, AECOM was a $27 stock just days before the 2017 election results.
AECOM shares have a 52-week trading range of $26.65 to $40.72. The consensus analyst price target of $39.70 has been more or less flat for 90 days but is lower than the $43.50 consensus analyst target from earlier this year. Its market cap was last seen at $5.5 billion, down from a previous $5.9 billion. Analysts expect that revenue of $17.4 billion in 2016 will grow to $17.9 billion in 2017 and ultimately to $19.5 billion in 2019.
Caterpillar
Caterpillar Inc. (NYSE: CAT) needs no introduction. The company’s shares have exploded higher in 2017 after having been left for dead in prior years. If one American equipment giant will win from orders here and abroad, Caterpillar will find a way. This Dow Jones Industrial Average component has a dividend yield of about 2.4%, and trading at $137.70 after third-quarter earnings, it pays a hefty dividend. Its stock has continued to defy those who have tracked its monthly global and North American sales trends as the sole basis to invest.
Caterpillar traded under $100 back in March, and its $137.70 share price might spook many investors. The consensus price target was under $95 earlier this year, and now the consensus analyst target price is $144.45. After earnings, firms with the higher targets were as follows: BMO ($165); UBS ($155); Wells Fargo ($160); Argus ($155); Stifel and Citigroup (both $145); and Deutsche Bank ($149).
Fluor
Irving, Texas-based Fluor Corp. (NYSE: FLR) has been a disappointment for infrastructure investors. The engineering, procurement, construction, maintenance and project management services provider sells to government and private industry in five groups: Oil & Gas, Industrial & Infrastructure, Government, Global Services and Power. Some investors may think the sell-off has been too harsh here, with shares at $42.75 after being near $56.00 in March of this year.
Flour has a consensus analyst price target that is now down to about $45 from above $57 earlier this year. Its market cap is about $6 billion, and it is already winning post-storm infrastructure contracts.
Granite Construction
This civil engineering player in infrastructure projects works on streets and roads, highways and bridges. Granite Construction Inc. (NYSE: GVA) also works in sites underground and in power-related facilities, utilities and other large projects. The company also mines and processes aggregates and sells construction materials for operations of infrastructure and heavy construction.
Granite Construction shares were trading at $55 when first featured at the beginning of March, and shares were at $57.70 on last look in October. Its market cap is $2.3 billion, and the 52-week range is $42.59 to $62.18. Granite’s consensus price target was about $65 when we covered it in March, but that consensus target price is currently about $66.
Jacobs Engineering
Jacobs Engineering Group Inc. (NYSE: JEC) is based in Pasadena, California, and is involved in almost every level of infrastructure planning and consulting to both government clients and to private industry. Much of Jacobs Engineering’s effort is international, and it has about 200 offices.
Shares of Jacobs Engineering were just under $58 at the start of March and the stock was last seen at $58.55. Shares have traded in a 52-week range of $49.16 to $63.42, and the current consensus analyst target price is $59.40.
KBR
For years this Houston-based company was considered as a military facility-support and disaster-support company. That means it could win if additional military deployments become necessary, but recent natural disasters and storms have helped its shares. The Government and Infrastructure business of KBR Inc. (NYSE: KBR) offers services to civilian authorities and private clients outside of the military, and from an outsider’s view it still seems that KBR can mobilize hundreds and even thousands of workers for disaster assistance faster than any other company.
This was a $15 stock just ahead of Hurricane Harvey, and shares were up at $18.40 on last look. They were at about $15.50 when we featured the stock in March, and the 52-week range is $13.17 to $19.39. KBR’s consensus price target was $19.23 at the start of March, and it is $19.25 now. The market cap is almost $2.6 billion.
Tetra Tech
California-based infrastructure player Tetra Tech Inc. (NASDAQ: TTEK) has seen shares rise in 2016 and again in 2017. Its two areas of operations are Water, Environment and Infrastructure, and Resource Management and Energy. Tetra Tech is still considered to be one of the great companies when it comes to consulting, engineering, construction, technical services and project management in its two areas of operations. It also keeps growing its headcount over time and has been a hurricane-recovery winner.
Tetra Tech shares were trading at $41.50 in March, and the stock was under $41 in the days before Hurricane Harvey. Now that Puerto Rico has been trashed along with much of the Caribbean, and after Hurricane Irma blasted Florida, its shares are close to $49.75. Tetra Tech has a 52-week range of $36.96 to $50.00. Its consensus price target was $49.00 back in March, but that target is now up above $51, and the company now has a $2.8 billion market cap.
United Rentals
Not only has United Rentals Inc. (NYSE: URI) been a stellar performer since the start of 2017, but going back to last year’s election. The company is involved in oil and gas equipment, as well as all sorts of equipment for building projects from residential to commercial to massive infrastructure projects. It has grown exponentially since a private equity company tried unsuccessfully to acquire the company more than a decade ago.
United Rentals was trading at $133.40 when we featured it at the start of March, and its stock is now at $141.75. The market cap is $12 billion, and shares have traded in a 52-week range of $70.58 to $147.60. The stock’s consensus analyst price target was down at $123.86 at the start of March, but it was most recently seen up at $144.23.
On the Other Hand
24/7 Wall St. does not only highlight the positive issues. There have been some serious disappointments along the way. Politics and the surrounding push and pull policies have been hard to stomach, but there also have been some disappointing companies when it comes to performance.
One such disappointment has been Chicago Bridge & Iron Co. N.V. (NYSE: CBI). This company already had undergone much change since 2013 after its Shaw purchase, but 2017 has been rather harsh on it. CB&I was last seen trading at $16.75 — down more than 50% from its 52-week high, and almost every analyst has thrown in the towel on this company.
Another disappointment was United States Steel Corp. (NYSE: X). This stock was initially treated as a huge Trump infrastructure winner after the election, rising to almost $40 at the start of March from just $20 before the election. After poor earnings earlier this year, now U.S. Steel’s stock was last seen down at $28.15, and analysts see very little upside now, even at lower share prices. The company is worth just $4.9 billion, and the 52-week trading range of $17.05 to $41.83 should outline just how boom-bust investors can treat the company.
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