Sterling Infrastructure, Inc.: Beating Forecasts and Raising Guidance
AInvestSunday, Nov 10, 2024 9:50 am ET
2min read
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Sterling Infrastructure, Inc. (STRL) recently reported record third quarter 2024 results, surpassing analyst expectations and leading to upward revisions in analyst predictions. The company's strong performance can be attributed to key market trends and opportunities within its primary business segments.
In the E-Infrastructure Solutions segment, Sterling has benefited from a shift towards large, mission-critical projects, such as data centers and manufacturing. This trend is reflected in the segment's 89% operating income growth and 1,100 basis points expansion in operating margins. Data center-related revenue increased approximately 90% in the quarter, now representing over 50% of segment backlog. This growth is driven by the increasing demand for data storage and processing infrastructure, fueled by the digital transformation and growth in cloud services.
The Transportation Solutions segment has experienced broad-based demand across its footprint and end markets, with revenue growth of 18% and operating profit growth of 28%. This segment's strong performance is supported by the robust transportation markets and the remaining authorization under the Infrastructure Investment and Jobs Act (IIJA).
In the Building Solutions segment, despite a slowdown in the Dallas market and a decline in revenue of 10%, operating profit grew by 12%. The segment's residential concrete slab and plumbing businesses were impacted by a temporary slowdown, but the company remains bullish on the multi-year demand trends in its key geographies. The segment is expected to deliver operating profit growth in excess of 20% in 2024 as its mix shifts toward higher-margin offerings.
These market trends and opportunities have enabled Sterling to deliver 6% revenue growth and a remarkable 56% increase in diluted EPS, with gross profit margins reaching a new record of 21.9%. The company's strong backlog position, visibility into future opportunities, and focus on maximizing returns give it confidence in its ability to deliver on its guidance for the year.

Analysts have been updating their earnings estimates for STRL following the company's strong financial performance. Key factors driving these revisions include the company's record-breaking revenue growth, expanding gross margins, and significant improvement in net income. STRL's focus on margin expansion and project selectivity has led to a 350 basis point increase in gross margins, reflecting the benefits of a shift towards large, mission-critical projects. Additionally, the company's robust backlog and cash flow generation have contributed to analysts' optimism.
Analysts have been raising their price targets and maintaining their 'buy' recommendations in response to STRL's recent performance. The average price target has increased to $105.50, up from $98.33 in early November. Analysts also maintain a 'buy' or 'hold' recommendation, reflecting their confidence in STRL's growth potential and solid fundamentals.

The consensus among analysts regarding STRL's growth prospects and long-term valuation is bullish. Analysts' EPS estimates for 2024 range from $5.60 to $5.75, reflecting a 13% increase from the prior year. The company's strong Q2 2024 results, marked by 12% revenue growth and 31% diluted EPS increase, have further bolstered analysts' confidence. The midpoint of the 2024 guidance represents 11% revenue growth, 28% net income growth, and 18% EBITDA growth, aligning with analysts' optimistic outlook.
In conclusion, Sterling Infrastructure, Inc. has demonstrated strong financial performance and growth potential, as evidenced by its record-breaking results and analyst revisions. The company's strategic shift towards large, multi-phase projects, focus on margin expansion, and favorable market trends have contributed to its success. With analysts maintaining a bullish outlook and raising their price targets, STRL presents an attractive investment opportunity for those seeking exposure to a well-positioned and financially sound company.
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