Construction Partners Shares Fall 10% After Short Report by Spruce Point Capital

Construction Partners, Inc. (NASDAQ: ROAD) shares plummeted by approximately 10% on Monday, October 21, 2024, following the release of a short report by Spruce Point Capital Management, LLC (Spruce Point). The report, titled "An As-Faulty Investment," raised several concerns about the company's financial prospects and valuation, leading to a significant sell-off in the stock.

Spruce Point, a research and investment firm, published the report on October 21, 2024, detailing its concerns about Construction Partners' business model, financial performance, and valuation. The report highlights several key issues that could impact the company's long-term sustainability and shareholder value.

One of the primary concerns raised in the report is the potential decline in contract awards from the Florida Department of Transportation (FDOT), Construction Partners' largest customer. Spruce Point obtained evidence through Freedom of Information Act requests that suggests contract awards from FDOT have materially declined, which could significantly impact the company's revenue and profitability. In 2023, Construction Partners generated around $400 million in revenue from FDOT contracts, accounting for approximately 25% of its total revenue.

The report also questions the strength of Construction Partners' recent acquisition expansion into Texas and Oklahoma, specifically the acquisition of Lone Star Paving. Spruce Point argues that the acquisition may not be as strong as portrayed, with Lone Star Paving's project backlog declining by 25% in the first half of 2024. This concern is further supported by the fact that Lone Star Paving's backlog was only $660 million at the time of acquisition, which is relatively low compared to Construction Partners' other acquisitions.

Spruce Point also raises concerns about Construction Partners' organic revenue growth failures, weakening backlog quality, and declining return on capital and free cash flow conversion. The report argues that these issues, combined with the potential decline in FDOT contracts and the questionable strength of the Lone Star Paving acquisition, could lead to a reassessment of the company's financial prospects and valuation.



In response to the report, Construction Partners released a statement on October 21, 2024, addressing the concerns raised by Spruce Point. The company stated that it strongly disagrees with the report's conclusions and believes that Spruce Point's analysis is flawed and misleading. Construction Partners also emphasized its commitment to transparency and accurate financial reporting, stating that it will continue to provide accurate and timely information to its shareholders.



Despite the company's response, the short report by Spruce Point Capital has raised significant concerns among investors, leading to a 10% decline in Construction Partners' stock price. Investors should carefully consider the points raised in the report and evaluate the company's financial prospects and valuation in light of these concerns. As the situation develops, it will be essential to monitor Construction Partners' financial performance and any further responses from the company or other analysts.

In conclusion, the short report by Spruce Point Capital has raised several concerns about Construction Partners' financial prospects and valuation, leading to a significant sell-off in the company's stock. Investors should carefully consider the points raised in the report and monitor the situation as it develops.