Great Lakes' S&P Global Ratings Upgrade to B: A Catalyst for Undervalued Infrastructure Equity Investments

The recent credit rating upgrade of Great Lakes Dredge & Dock Corp. (GLDD) by S&P Global Ratings from "B-" to "B" on November 25, 2025, marks a pivotal moment for the infrastructure sector. This upgrade, driven by the company's robust financial performance and operational execution, not only reflects improved creditworthiness but also signals broader opportunities for undervalued infrastructure equities. By analyzing GLDD's trajectory alongside sector-wide trends and historical precedents, investors can identify compelling entry points in a market poised for growth.

Factors Behind the Upgrade

S&P's rationale for the upgrade underscores GLDD's outperformance in key metrics. The company reported stronger-than-expected revenue growth and expanded margins in the first three quarters of 2025, supported by a robust backlog of projects, improved fleet utilization, and disciplined cost management. These factors align with S&P's assessment that GLDD's financial profile is now more resilient, with stable revenue and margin growth expected through 2026. Notably, the upgrade follows a period of strategic capital allocation, including reduced capital expenditures, which are projected to enhance free cash flow generation.

This shift in credit outlook mirrors broader trends in the infrastructure sector, where companies with strong operational execution and prudent capital structures are increasingly rewarded. For instance, Southland Holdings, another infrastructure player, recently converted $20 million of management debt into equity, signaling confidence in its long-term value while improving its balance sheet. Such moves highlight the sector's focus on optimizing leverage and unlocking shareholder value-themes that GLDD's upgrade reinforces.

Sector-Wide Tailwinds

The infrastructure sector has gained momentum in 2025, driven by macroeconomic and technological forces. Digital infrastructure, in particular, has surged 30% year-over-year, fueled by demand for data centers to support generative AI and cloud computing. Easing inflation and policy rate cuts have further bolstered investor appetite for interest-rate-sensitive assets like listed infrastructure, which delivered a 30% return in Q3 2024. These dynamics create a favorable backdrop for companies like GLDD, whose physical infrastructure capabilities (e.g., dredging and marine construction) are critical to maintaining and expanding global supply chains.

Historical case studies reinforce the link between credit upgrades and equity valuation gains. For example, Moody's upgrade of Welltower from Baa1 to A3 in 2025 was accompanied by a stable outlook and a 12% stock price increase over six months, driven by improved financial metrics and demographic-driven demand for senior housing. Similarly, Getlink SE's upgraded ratings from S&P and Fitch highlighted its role as a linchpin in cross-Channel logistics, with its shares outperforming the European infrastructure index by 18% post-upgrade. These examples illustrate how credit upgrades often catalyze investor confidence, particularly when tied to structural growth drivers.

Undervalued Opportunities in Infrastructure

While GLDD's upgrade is a standout event, it also highlights undervalued peers in the sector. Southland Holdings, for instance, trades at a P/E ratio of 11.43, significantly below its five-year average, despite demonstrating strong project execution and a diversified infrastructure services portfolio. Similarly, Priority, a mid-cap infrastructure firm, saw its credit rating upgraded by Moody's to B1 in early 2025, reflecting improved cash flow generation and a deleveraged balance sheet. These cases suggest that investors should focus on companies with clear operational momentum and conservative capital structures, as these traits often precede both credit upgrades and equity outperformance.

Investment Implications

GLDD's S&P upgrade serves as a microcosm of the infrastructure sector's evolving dynamics. For investors, the key takeaway is that credit upgrades are not isolated events but rather signals of broader structural strengths. Companies with strong backlogs, disciplined capital allocation, and exposure to high-growth areas (e.g., digital infrastructure, energy transition) are likely to attract renewed interest. Moreover, the current macroeconomic environment-marked by accommodative monetary policy and surging demand for infrastructure-creates a tailwind for equities that were previously undervalued due to cyclical concerns.

In conclusion, Great Lakes' upgrade to "B" is more than a credit event; it is a harbinger of a sector in transition. By leveraging historical precedents and sector-specific tailwinds, investors can identify undervalued infrastructure equities with the potential to deliver outsized returns in the coming years.