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Aegion's Unit to Rehabilitate Memphis' Wastewater Pipelines

Zacks Equity Research

Aegion Corporation AEGN announced that its unit Insituform Technologies, LLC has won a $7.2-million contract from the city of Memphis, TN.

Per the contract, the unit will install Insituform cured-in-place pipe (“CIPP”) in more than 10 miles of 8- to 36-inch wastewater pipelines, particularly in residential areas across the city. The project is expected to start in July 2019 and slated to be completed within a year.

Commitment to Rehabilitate Wastewater Pipelines

Aegion remains dedicated to maintain its market leadership position in the rehabilitation of wastewater pipelines in North America using CIPP technology which is the largest contributor to consolidated revenues.

Its Insituform CIPP is a trenchless, jointless and seamless pipe-within-a-pipe solution used to rehabilitate pipes in numerous diameters. Notably, the Insituform CIPP is the first trenchless technology for renovating wastewater pipelines without making extreme expense and disruption, replacing the conventional “dig-and-replace” methods.

The company’s CIPP technology within the Infrastructure Solutions business is the largest contributor to top-line growth. Notably, the said business, which accounted for 47.5% of first-quarter 2019 revenues, offers a diverse portfolio of solutions in a highly fragmented and growing market.

Notably, the segment’s first-quarter revenues (excluding the impact of exited or to-be-exited businesses) inched up 2%, driven by solid growth in the North America CIPP business, and a fewer impacts of manpower and equipment challenges compared with the prior-year period.

Also, adjusted gross and operating margins increased impressively by 370 and 450 basis points, respectively, during the quarter. Owing to continuous cost-cutting and restructuring initiatives taken up by the company, adjusted operating expenses declined 8% from the prior-year quarter.

However, due to reduction in large coating project contributions at Corrosion Protection and turnaround activity at Energy Services, Aegion’s overall performance slumped during the first quarter. The company’s shares have gained 14.7% so far this year compared with its industry’s growth of 28.9%.

Although the company’s shares have underperformed the industry in the said period, strong backlog position, improved market outlook for core businesses and robust Insituform CIPP process raise hopes.

Contract wins like the latest one are expected to help it overcome the above-mentioned headwinds in the upcoming quarters.

Zacks Rank & Other Key Picks

Aegion currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other top-ranked stocks in the same space include Construction Partners, Inc. ROAD, Quanex Building Products Corp. NX and TopBuild Corp. BLD, each carrying a Zacks Rank #1.

Construction Partners has a three-five year expected EPS growth rate of 10%.

Quanex Building Products and TopBuild’s earnings for the current year are expected to grow 30.8% and 21.8%, respectively.

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