Granite Construction's Margin Expansion and Valuation Potential: A Case for Undervalued Industrial Resilience

The infrastructure sector has long been a cornerstone of economic resilience, and 2025 has proven no exception. As governments and private investors double down on the Infrastructure Investment and Jobs Act (IIJA), companies like Granite Construction (GVA) are emerging as compelling plays. With margin expansion accelerating and valuation metrics suggesting undervaluation, Granite stands out as a strategic opportunity in a sector poised for sustained growth.

Margin Expansion: A Product of Operational Discipline and Strategic Acquisitions

Granite's Q2 2025 results underscore its ability to navigate macroeconomic headwinds while expanding profitability. The company's Construction segment reported a gross profit margin of 16.4%, up from 14.7% in Q2 2024, while its Materials segment surged to 24.1% from 17.8% year-over-year, according to the report. These gains reflect a combination of disciplined project execution, a higher-quality project portfolio, and favorable claim settlements noted in the filing.

Operating margins also showed meaningful improvement, with an adjusted EBITDA margin of 13.5% in Q2 2025, compared to 12.0% in the prior-year period. For the first half of 2025, the adjusted EBITDA margin expanded to 9.9%, driven by cost controls and strategic acquisitions. Notably, Granite's $425 million acquisition of Warren Paving and Papich Construction in Q2 2025 added annual revenue and was expected to be EBITDA margin accretive, according to Investing's Q2 slides. These moves, combined with a vertically integrated business model, have fortified Granite's ability to outperform peers in a competitive market, as highlighted in those slides.

Valuation Metrics Suggest Undervaluation in a Resilient Sector

As of August 8, 2025, the company traded at a trailing P/E ratio of 35.65 and a forward P/E of 19.77, per the MarketBeat earnings page. Peer comparisons further highlight its attractiveness, with GVA's P/E of 29.1x significantly lower than the industry average of 37.2x, according to the Simply Wall St valuation. That source also shows a P/EBITDA ratio of 13.7x, which positions it competitively within the construction sector.

Analysts suggest the stock is undervalued relative to its intrinsic worth. A fair value estimate of $129.33-18% above its last closing price-reflects optimism about Granite's long-term prospects, according to a Sahm Capital estimate. This optimism is bolstered by a $5.74 billion backlog and the IIJA's projected funding pipeline through 2026, details that the Q2 slides also underline. Even as Trump-era tariffs strain input costs, Granite's proactive cost management has mitigated these pressures, per the company's presentation materials.

Digital Infrastructure Tailwinds and Long-Term Catalysts

The broader infrastructure landscape is evolving rapidly. Digital infrastructure, including data centers and 5G networks, is outperforming traditional segments, with the market projected to grow from $360 billion in 2025 to $1.06 trillion by 2030, according to a Mordor Intelligence analysis. While Granite's core business remains rooted in traditional construction, its strategic acquisitions and vertically integrated model position it to capitalize on ancillary opportunities in this high-growth arena, as noted in the company's investor materials.

Conclusion: A Compelling Case for Industrial Resilience

Granite Construction's margin expansion, strategic acquisitions, and favorable valuation metrics make it a standout in the infrastructure sector. While its P/EBITDA ratio remains opaque in some reports, its earnings growth and peer-relative undervaluation provide a strong foundation for long-term gains. As the IIJA fuels a multiyear construction boom and digital infrastructure gains momentum, Granite is well-positioned to deliver outsized returns for investors willing to look beyond short-term volatility.