Here's Why Investors Should Retain Stantec (STN) Stock Now
Stantec Inc.(STN) follows a diversified business model coupled with a solid multi-year strategy. The results are a reflection of the company’s resilience and growth. The fourth quarter result substantiates the same.
Stantec’s fourth-quarter 2022 earnings beat the Zacks Consensus Estimate but revenues fell short of the same.Adjusted earnings (excluding 11 cents from non-recurring items) came in at 60 cents, beating the Zacks Consensus Estimate by 13.2%. Adjusted earnings increased 33.3% from the year-ago figure. Total revenues of $832.7 million slightly missed the consensus estimate and decreased 11.5% on a year-over-year basis. The top line includes 10.6% organic growth and 9.8% growth from acquisitions.
On the US revenue front which has generated around 50% of revenues, organic growth is an important driver. Organic growth effects are visible in transportation, industrial and residential land development activities. IIJA funding should boost the infrastructure business. Investments in resilient infrastructure to safeguard against natural calamities are expected. IRA investments are expected to act as a catalyst for renewable and other energy transition projects.
Revenues in the Canada segment are having an uptick where strong demand for environmental services have been evidenced. This is backed by ongoing demand in archaeological services, power transmission and distribution and energy transition. The building group is expected to continue the growth pattern with projects in healthcare and mixed-use commercial. The infrastructure is expected to reap the benefits of community development contracts and ongoing bridgeworks.
STN has been in the process of streamlining supply chains and the appointment as prime consultant in the World Logistics Center project in California is one such example. With Stantec’s multidisciplinary expertise, these projects are expected to do a world of good for the company. Increased market presence, an engaged workforce and an impressive mergers and acquisition pipeline are expected to act in favor of STN. The company’s shareholder-rewarding attitude is also noteworthy which increases investors’ confidence in the stock.
Let’s look at some other factors that make STN a stock to be retained in portfolios.
Price Performance
STN has had an impressive run on the bourses in the past six months. The stock has rallied 21.1% against the Zacks Consulting Services industry’s 6.6% fall.
Stantec Inc. Price
Stantec Inc. price | Stantec Inc. Quote
Bullish Industry Rank
The industry to which Stantec currently belongs has a Zacks Industry Rank of 55 (of 249 groups). Such a solid rank places the industry in the top 22% of the Zacks industries. Studies show that 50% of a stock price movement is directly tied to the performance of the industry group that it hails from.
In fact, a mediocre stock in a healthy group is likely to outperform a robust stock in a poor industry. Therefore, taking the industry’s performance into account becomes necessary.
Earnings Surprise History
STN has an impressive earning surprise history having beaten the Zacks Consensus Estimate in three of the four trailing quarters and matching in the other one. The average surprise is 5.5%.
STN currently carries a Zacks Rank #3 (Hold).
Some Risks
Stantec's current ratio (a measure of liquidity) at the end of fourth-quarter 2022 was pegged at 1.37, lower than the current ratio of 1.41 reported at the end of fourth-quarter 2021. It indicates that the company may have problems meeting its short-term debt obligations.
The company’s increasing operating expense, which has grown 20.2% on a year-over-year basis in 2022, is also a concern.
Stocks to Consider
Investors interested in the broader Zacks Business Service sector may consider the following stocks:
ICF International ICFI is being aided by the strong government business, courtesy of improvement in the business development pipeline and win rate. In the fourth quarter of 2022, ICFI reported better-than-expected results. Quarterly earnings (excluding $1.09 from non-recurring items) came in at $1.56, beating the Zacks Consensus Estimate by 4.7% and increasing 31.1% from the year-ago reported figure. For first-quarter 2023, ICFI’s earnings are expected to register 7.6% growth on a year-over-year basis. For 2023, the company’s earnings are expected to grow 9.2% on a year-over-year basis.
The Zacks Consensus Estimate for the company’s first-quarter 2023 earnings is pegged at $1.41, which has been revised upward by 6% in the past 60 days. The consensus estimate for the full year is $6.3 per share. This has been revised upward 7.3% in the past 60 days. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Omnicom Group'sOMC internal development initiatives and shareholder-friendly policies ensure long-term profitability. In the fourth quarter of 2022, OMC reported better-than-expected results. Earnings of $2.09 per share beat the Zacks Consensus Estimate by 7.7% and increased 7.2% year over year, driven by a strong margin performance. For first-quarter 2023, OMC’s earnings are expected to match the year-ago reported figure of $1.39. The company’s earnings are expected to grow 3.2% on a year-over-year basis in 2023.
The Zacks Consensus Estimate for the company’s first-quarter 2023 earnings is pegged at $1.39, which has been revised downward by 2.1% in the past 60 days. The consensus estimate for the full year is $7.15 per share. This has been revised upward 13.7% in the past 60 days. The company currently sports a Zacks Rank of 1.
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