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Sterling Construction Up 47% in 3 Months: What's Driving It?

Zacks Equity Research

Shares of Sterling Construction Company, Inc. STRL have gained around 47% in the last three months. The company has also significantly outperformed its industry’s gain of roughly 15%.

Sterling Construction has a market cap of roughly $469.3 million. Average volume of shares traded in the last three months is around 459.6K. The company has an impressive earnings surprise history as it has topped the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 65.19%.

Let’s take a look into the factors that are driving this Zacks Rank #1 (Strong Buy) stock.

Driving Factors

Sterling Construction’s share price has benefited since third-quarter results on Oct 30. Earnings per share surged an impressive 160% year over year to 26 cents. Earnings also beat the Zacks Consensus Estimate of 22 cents by a margin of 18%. Following the upbeat performance, the company also raised guidance range for 2017. Sterling Construction now expects revenues in the range of $915-$935 million. Net income attributable to the company’s common stockholders is projected in the range of $11.0-$12.5 million.

Going forward, an improving macro environment will lead to a steady stream of heavy civil project opportunities for the company. In the residential business, the Dallas-Fort Worth Metroplex will continue growing at low-double digit percentages and the company is on track to begin an expansion of residential construction operations in the Houston market in the first half of 2018. This will drive top-line growth in the mid-to-high single digits. This combined with its shifting mix toward higher margin business should lead to margin expansion and increased cash flow.

Prior to earnings, the Tealstone acquisition had also helped prop up share price. Sterling Construction had acquired Denton, TX-based concrete construction company, Tealstone Construction earlier this year. The buyout added approximately 10 cents to earnings in the third quarter. Tealstone is a market leader in commercial and residential concrete construction in the Dallas-Fort Worth Metroplex. This takeover will help the company expand in adjacent markets with higher margin project opportunities.

In the last two years, the company has made a successful turnaround and dramatically improved balance sheet as well as overall financial strength. Its core markets remain strong and consequently, the company is now well positioned to generate substantial earnings growth in the future.

Estimates for fiscal 2017 and 2018 for Sterling Construction have moved up in the past 30 days, reflecting the optimistic outlook of analysts.

The estimate for fiscal 2017 has gone up 15% to 45 cents, which reflects year-over-year growth of 211.25%. The Zacks Consensus Estimate for earnings for fiscal 2018 has also moved up 2% to 98 cents, year-over-year growth of 119%.

Other Stocks to Consider

Other top-ranked stocks worth considering in the same sector are Boise Cascade Company BCC, EMCOR Group, Inc. EME and MasTec Inc. MTZ. While Boise Cascade and EMCOR flaunt a Zacks Rank #1, MasTec carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boise Cascade has an average positive earnings surprise of 116.28% in the trailing four quarters. Its shares have soared 72% in the past year.

EMCOR Group generated an average positive earnings surprise of 16.96% in the past four quarters and its shares clocked a 15% gain in the last year.

MasTec has an average positive earnings surprise of 28.05% in the last four quarters. MasTec’s shares rose 13% in the last year.

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