Sweco's Valuation Attractiveness: A Case for Undervalued Engineering in a Stabilizing Sector

The engineering and infrastructure sector, long buffeted by macroeconomic headwinds, is showing signs of stabilization in 2025. As public investment in infrastructure accelerates and private firms pivot toward scalable, labor-efficient platforms, valuation multiples are beginning to reflect a nuanced interplay of quality over quantity. Against this backdrop, Sweco AB (OM:SWEC B) emerges as a compelling case study in undervaluation, despite its robust financials and strategic alignment with industry megatrends.

A Sector in Transition: Quality Over Quantity

The 2025 engineering infrastructure landscape is defined by a shift toward firms with recurring revenue streams and specialized technical expertise. According to a report by KPMG, valuation multiples now favor businesses offering niche capabilities-such as data center engineering, circular economy infrastructure, and PFAS treatment-over traditional construction playbooksSweco AB (STO:SWEC.B) Statistics & Valuation Metrics - Stock Analysis^[1]. For instance, data center developers have commanded EBITDA multiples exceeding 30x, driven by surging demand for computing power and AI-driven storage needsInfrastructure in 2025: Megatrends and Mid-Market Opportunities^[2]. Meanwhile, circular economy solutions, including waste recycling and water treatment, are gaining traction as decarbonization goals tightenInfrastructure in 2025: Megatrends and Mid-Market Opportunities^[2].

Yet Sweco, a leader in civil engineering and building technology, trades at a 15.3x EV/EBITDA multipleSweco - Public Comps and Valuation Multiples^[5], significantly below the 16.79x average for engineering peersSweco (OM:SWEC B) Stock Valuation, Peer Comparison & Price Analysis^[3]. This discrepancy suggests the market is underappreciating Sweco's strategic depth and operational resilience.

Sweco's Financial Fortitude: Profitability and Prudence

Sweco's Q2 2025 results underscore its financial discipline. With net sales of SEK 7,834 million and an EBITA margin of 9.6%, the firm has maintained profitability amid inflationary pressuresSweco AB Reports Stable Growth and Increased M&A Activity in Q2 2025^[4]. Its return on equity (18.80%) and return on invested capital (11.04%)Sweco AB (STO:SWEC.B) Statistics & Valuation Metrics - Stock Analysis^[1] outperform industry benchmarks, reflecting efficient capital allocation. Liquidity metrics further bolster confidence: a current ratio of 1.14 and a debt-to-equity ratio of 0.58Sweco AB (STO:SWEC.B) Statistics & Valuation Metrics - Stock Analysis^[1] indicate a balanced approach to leverage.

The company's recent M&A activity-acquiring Juust and Brain of Buildings-has expanded its expertise in digital engineering and sustainable infrastructureSweco AB Reports Stable Growth and Increased M&A Activity in Q2 2025^[4], aligning with the sector's pivot toward circular economy and data center solutions. These moves position Sweco to capitalize on high-margin niches, yet the stock remains undervalued by 13.3% relative to analyst estimates of SEK 185.40Sweco (OM:SWEC B) Stock Valuation, Peer Comparison & Price Analysis^[3].

Valuation Metrics: A Case of Mispricing?

Sweco's trailing P/E of 27.02 and forward P/E of 23.42Sweco AB (STO:SWEC.B) Statistics & Valuation Metrics - Stock Analysis^[1] appear elevated at first glance, but the PEG ratio of 2.44 suggests growth expectations are not fully priced in. This disconnect may stem from short-term concerns about macroeconomic volatility, despite the company's strong free cash flow (SEK 3.19 billion in the last 12 months)Sweco AB Reports Stable Growth and Increased M&A Activity in Q2 2025^[4].

Comparative analysis reveals further asymmetry. Private engineering firms with EBITDA ranges of $5M–$10M trade at 8.5x multiplesInfrastructure in 2025: Megatrends and Mid-Market Opportunities^[2], while Sweco's 15.3x EV/EBITDA multiple reflects a premium to mid-market peers. This premium is justified by Sweco's scale, recurring revenue model, and geographic diversification across Europe. Analysts at SimplyWall St note that the firm's "stable growth trajectory and defensive margins make it a rare combination in a cyclical sector"Sweco (OM:SWEC B) Stock Valuation, Peer Comparison & Price Analysis^[3].

Strategic Alignment with Megatrends

Sweco's recent foray into circular economy infrastructure-such as PFAS treatment and resource-efficient construction-positions it to benefit from regulatory tailwinds. Similarly, its digital engineering capabilities (via Brain of Buildings) align with the sector's shift toward AI-driven project management and predictive maintenanceSweco AB Reports Stable Growth and Increased M&A Activity in Q2 2025^[4]. These innovations mirror the high-valuation plays in data centers and decarbonization, yet Sweco's stock has not yet reflected this strategic repositioning.

Investment Implications

The undervaluation of Sweco appears to stem from a combination of sector-wide skepticism and underappreciation of its long-term growth vectors. While the engineering sector grapples with near-term challenges-labor shortages, material costs-the company's strong balance sheet, recurring revenue streams, and niche expertise offer a margin of safety.

For investors seeking undervalued engineering plays in a stabilizing market, Sweco presents a compelling opportunity. Its alignment with high-growth megatrends, coupled with a discount to intrinsic value, suggests potential for significant upside as the market recalibrates its expectations.