Construction Partners, Inc. ROAD has been riding high on the back of solid and consistent execution of its business model, and growth strategy. Shares of this vertically integrated civil infrastructure company have gained 71.3% year to date compared with the industry’s 25.6% growth. Also, it has outperformed the S&P 500’s 13.4% rise in the said period.
Notably, earnings estimates for 2019 and 2020 have been upwardly revised by 2.4% and 1%, respectively, over the past 30 days, suggesting that sentiments on Construction Partners are moving in the right direction. This depicts bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s delve deeper and analyze the stock’s prospects:
What’s Working in Favor of the Stock?
Strong Growth Opportunities: Construction Partners’ organic and inorganic growth opportunities in the attractive southeastern U.S. road construction/repair market are expected to help the company generate higher revenues. Revenues grew 17.6% year over year in the first nine months of fiscal 2019. Precisely, the company’s fiscal third-quarter revenues grew 16.5% from the last year, leading to 37.9% growth in adjusted EBITDA and 220-basis point expansion of adjusted EBITDA margin. This marked its sixth consecutive quarter of revenue growth since IPO last year. The growth was fueled by strong operational performance and effective project execution throughout the markets served, via effectively utilizing hot mix asphalt plants and equipment.
As of Jun 30, 2019, project backlog was $581 million. Of this amount, 38% or approximately $221 million is expected to be completed during this fiscal year. The remaining 62% of the project backlog is expected to be completed in the coming years. The company’s healthy backlog is expected to drive revenues.
It has solid prospects, as is evident from the Zacks Consensus Estimate for earnings per share (EPS) for the current quarter of 35 cents, which indicates 20.7% year-over-year growth. Although the company’s earnings in fiscal 2019 are expected to drop slightly, the same in 2020 is likely to grow 16.5% from the prior-year quarter. Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of B.
Robust Acquisitions: Construction Partners has been bolstering inorganic growth and market expansion over the last few quarters. In mid-July 2019, the company announced the acquisition of a hot mix asphalt manufacturing plant and paving company, which marks its 19th buyout. The acquisition will allow Construction Partners to expand operations in the northeast Alabama market, thereby increasing revenues and earnings. This acquisition marks the company’s fourth successfully completed acquisition since its initial public offering in May 2018.
Solid VGM Score & Superior ROE: Construction Partners has an impressive VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 offer solid investment choices.
Construction Partners’ return on equity (ROE) is indicative of growth potential. The company’s ROE of 13.5% compares favorably with the industry’s average of 12.7%, implying that it is efficient in using its shareholders’ funds.
Other Stocks to Consider
Other top-ranked stocks in the broader Construction sector include Frontdoor, Inc. FTDR, Aegion Corporation AEGN and Gibraltar Industries, Inc. ROCK. While Frontdoor sports a Zacks Rank #1, the other two stocks carry a Zacks Rank #2.
Frontdoor and Aegion’s has a three-five year expected EPS growth rate of 15.5% and 10%, respectively.
Gibraltar’s earnings are expected to increase 15.9% in 2019.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Aegion Corporation (AEGN) : Free Stock Analysis Report
Gibraltar Industries, Inc. (ROCK) : Free Stock Analysis Report
Frontdoor, Inc. (FTDR) : Free Stock Analysis Report
Construction Partners, Inc. (ROAD) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research