Everus Construction: A Catalyst for Infrastructure Growth with Backlog-Driven Momentum

Everus Construction Group (ECG) has emerged as a standout player in the infrastructure sector, with its Q1 2025 results underscoring a compelling investment thesis rooted in $3.1 billion of record backlog—a 40.5% year-over-year surge—and a diversified pipeline of high-growth projects. With secular tailwinds in data center construction, utility modernization, and high-tech reshoring, ECG is positioned to capitalize on structural demand, while its reaffirmed $3.0–$3.1 billion revenue guidance signals confidence in its ability to convert backlog into sustained profitability. Here’s why investors should take note.

The Power of the Backlog: Revenue Visibility at Scale

Backlog—defined as the value of contracted but uncompleted projects—acts as a leading indicator of future revenue. ECG’s $3.1 billion backlog (up 10% quarter-over-quarter and 40.5% year-over-year) is a testament to its ability to win large, complex projects. Management emphasized that this backlog is “a key driver of future revenue,” with 80% of the total tied to long-term contracts, reducing execution risk.

The Electrical & Mechanical (E&M) segment, which contributes 80% of revenues, is the backbone of this growth. Q1 E&M revenues jumped 47% to $648 million, fueled by data center projects (a key beneficiary of cloud computing and AI investments) and high-tech reshoring initiatives tied to the CHIPS Act. The segment’s backlog alone stands at $2.7 billion, a 46% year-over-year leap, signaling ample runway for future earnings.

Even the Transmission & Distribution (T&D) segment, which faced weather-related headwinds, saw its backlog grow 29% sequentially to $353 million, driven by utility infrastructure upgrades and undergrounding projects. This diversification reduces reliance on any single sector, a critical advantage in volatile markets.

Secular Tailwinds: Why Infrastructure Growth Is Here to Stay

Everus’ moat lies in its alignment with three unstoppable trends:

1. Data Center Boom: Global hyperscalers like Amazon, Microsoft, and Alphabet are investing hundreds of billions in data centers to support AI, cloud computing, and 5G. ECG’s deep expertise in E&M systems—critical for power distribution and cooling in data centers—positions it as a key partner.
2. Utility Modernization: Aging grids and climate resilience demands are fueling demand for underground power lines, smart grids, and traffic signalization. ECG’s T&D segment is already winning contracts here, with backlog growth outpacing industry peers.
3. High-Tech Reshoring: The CHIPS Act is accelerating semiconductor manufacturing in the U.S., requiring advanced infrastructure for clean rooms, power systems, and water treatment. ECG’s cross-sector capabilities make it a natural beneficiary.

Risks, but Manageable Ones

While ECG’s fundamentals are strong, challenges remain:
- Margin Pressures: Gross margins dipped to 11.2% (from 11.9% in 2024) due to higher labor costs and project mix shifts. EBITDA margins are also expected to shrink slightly in 2025 as the company absorbs standalone operating costs post its October 2024 spinoff from MDU Resources.
- Cash Flow Volatility: Free cash flow turned negative in Q1 ($8.1 million) due to elevated capex ($18.5 million) for equipment and working capital needs. However, management expects cash flow to improve as projects progress.

Why Now Is the Time to Buy

Despite near-term headwinds, ECG’s valuation offers a compelling entry point. With a forward P/E of 18.5 (below its 5-year average of 21.3) and a net leverage ratio of 1.0x (comfortably below its 2.5x covenant limit), the balance sheet remains robust. Meanwhile, the $3.1 billion backlog provides a clear path to revenue growth, and management’s “4EVER strategy” (focused on backlog conversion, operational discipline, and capital allocation) is proving effective.

The stock currently trades at $15.20, near its 52-week low, despite its strong fundamentals. A buy rating is warranted for investors seeking exposure to infrastructure growth, with a price target of $20–$22 by year-end, assuming backlog execution and margin stabilization.

Final Verdict: Everus Construction—A Long-Term Infrastructure Play with Immediate Catalysts

Everus’ Q1 results and backlog milestones confirm its status as a leader in high-growth infrastructure sectors. With secular demand from data centers, utility modernization, and reshoring, combined with a disciplined strategy to convert backlog into earnings, ECG is a must-own name for investors betting on U.S. infrastructure revitalization. While margin pressures and cash flow volatility warrant caution, the long-term tailwinds and valuation make this a compelling buy for patient investors.

Action Item: Use dips below $15.00 as an entry point, with a stop-loss below $13.50. Monitor Q2 backlog updates and cash flow trends closely.

This article is for informational purposes only. Always conduct your own research or consult a financial advisor before making investment decisions.