Stantec: Capturing the Infrastructure Tailwinds for Compounding Gains

In an era where global infrastructure spending is accelerating to meet the demands of aging systems, climate resilience, and population growth, Stantec (TSE:STN) stands out as a masterclass in strategic positioning. The firm's recent performance, reinforced by Stifel Canada's reaffirmed $165 price target and “Buy” rating, underscores its ability to translate macro tailwinds into sustained earnings visibility. For investors seeking exposure to a sector poised for decades of demand, Stantec's combination of organic growth, disciplined acquisitions, and robust backlog offers a compelling case for compounding gains.

Strategic Alignment with Infrastructure Tailwinds

Stantec's business model is intrinsically linked to the infrastructure megatrends reshaping the global economy. Governments across North America, Europe, and emerging markets are prioritizing investments in water systems, transportation networks, and energy transition projects. Stantec's first-quarter 2025 results—$1.6 billion in net revenue, a 13.3% year-over-year increase—reflect this alignment. Organic growth of 5.9% in Q1 was driven by wastewater projects in Canada, rail expansions in the U.S., and energy transition work in Australia. Meanwhile, strategic acquisitions like Ryan Hanley (Ireland) and Page (U.S.) have expanded its capabilities in high-growth areas such as advanced manufacturing and cleanroom design.

The firm's geographic diversification further insulates it from regional volatility. Canada's 12.2% organic growth in Q1, fueled by Alberta's oil sands and Quebec's airport projects, complements U.S. strength in environmental services and data center design. Europe, meanwhile, benefits from Germany's €500 billion infrastructure fund and the U.K.'s water sector upgrades. This multi-jurisdictional footprint ensures Stantec is not reliant on a single market but instead capitalizes on overlapping cycles of public and private spending.

Resilient Earnings and a Robust Backlog

Stantec's financials reveal a company with operational discipline and pricing power. In Q1 2025, adjusted EBITDA rose 19.1% to $252.3 million, with margins expanding to 16.2%. This outperformance is driven by its ability to secure high-margin projects, such as the $1.1 billion Irving Pulp & Paper mill upgrade in New Brunswick—a project that exemplifies its expertise in large-scale industrial engineering.

The firm's $7.9 billion backlog, up 12.8% year-over-year, provides a clear runway for future revenue. This backlog is not just a number but a testament to Stantec's competitive differentiation. For instance, its PFAS water treatment project in Vancouver, Washington—capable of filtering 12.2 million gallons per day—highlights its technical edge in addressing emerging contaminants. Such projects are increasingly critical as regulators mandate stricter water quality standards, creating a recurring revenue stream for Stantec.

Valuation Caution vs. Long-Term Potential

Critics may point to Stantec's forward P/E ratio of 25, above its 10-year average of 18, as a sign of overvaluation. However, this premium reflects the market's recognition of its unique position in a sector with structural demand. Stifel Canada's $165 price target implies a 6.08% upside from the current C$151.14 level, but the firm's analysts acknowledge that this requires consistent execution. Fortunately, Stantec's Q1 results—29.4% growth in diluted EPS and a 7.9% backlog growth—suggest it is more than capable of justifying this premium.

The recent acquisition of Page, which adds 1,400 professionals in the U.S. architecture and engineering sector, is a case in point. By becoming the second-largest architecture firm in the U.S., Stantec is directly tapping into the $1.2 trillion infrastructure bill's emphasis on modernizing buildings and data centers. This acquisition not only enhances its revenue base but also diversifies its earnings streams, reducing reliance on cyclical sectors like oil and gas.

Investment Case: Positioning for Macro-Driven Momentum

For investors, the question is not whether Stantec can grow but how quickly it can scale. The firm's 2025 guidance—7% to 10% revenue growth and EBITDA margins of 16.7%–17.3%—is conservative relative to its current trajectory. With second-quarter earnings approaching, the market will likely reward any beat that confirms Stantec's ability to manage rising input costs and project complexity.

Moreover, Stantec's balance sheet remains a key enabler. Its net debt-to-EBITDA ratio of 2.1x is well within conservative thresholds, allowing it to fund acquisitions without overleveraging. This flexibility is critical in a sector where winning major contracts often requires upfront investment in talent and technology.

Conclusion: A Catalyst-Driven Play

Stantec's long-term growth is not a function of luck but a result of deliberate strategy: aligning with infrastructure tailwinds, executing high-margin projects, and expanding through accretive acquisitions. While short-term valuation concerns exist, the firm's backlog, earnings resilience, and strategic positioning in high-demand sectors like water treatment and energy transition make it a compelling long-term investment.

For investors seeking to capitalize on the next phase of global infrastructure spending, Stantec offers a rare combination of sector-specific expertise and macro-aligned growth. The current share price, trading at a discount to its intrinsic value based on cash flow generation and backlog visibility, presents an opportunity to compound gains as the firm scales its operations and captures market share in a sector with decades of runway.

In a world where infrastructure deficits are increasingly recognized as a drag on economic growth, Stantec is not just a beneficiary of the trend—it is a driver of it. Positioning now, before the next wave of macro-driven momentum, is a decision that could yield outsized returns for those with a multi-year horizon.