The firm is narrowing its focus to climate solutions, infrastructure projects, and digital technologies, a strategic shift expected to drive annual revenue growth (excluding acquisitions) by approximately 7% per year.
Meanwhile, management reported an 11.5% increase in revenue in the most recent quarter as well as a record order backlog, a solid sign of continued strong demand for the company’s services.
The stock trades at 24.4 times the company’s forward earnings forecast.
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STANTEC INC. (Toronto symbol STN) offers you exposure to this leading seller of consulting, project-delivery, design and technology services. Stantec’s clients operate in a variety of industries, including oil and gas, transportation and construction.
The company tends to use acquisitions to spur its growth, but it cuts related risk by targeting smaller, easy-to-absorb firms. Moreover, sharing administrative expenses, financing and employee benefits among its businesses helps lower overall costs.
For example, Stantec recently paid an undisclosed sum for Hydrock, a U.K.-based engineering firm that specializes in several service areas: fire safety, energy and sustainability, civil and structural, MEP (mechanical, electrical, and plumbing), transport, environmental, and geotechnical.
Stantec is also narrowing its focus to three main areas: climate solutions (helping clients mitigate the impact of climate change); infrastructure projects; and greater use of digital technologies, including artificial intelligence, to improve its efficiency.
The company expects the plan will increase its annual revenue (excluding acquisitions) by roughly 7% a year, to $7.5 billion by the end of 2026. Stantec also forecasts its earnings per share will rise 15% to 18% annually between 2024 and 2026.
Meanwhile, the company’s strong reputation continues to help it win new contracts.
Growth Stocks: New contracts keep adding to a record order backlog
For example, the owners of the Metropolis at Metrotown shopping centre in Burnaby, B.C. have selected Stantec as executive architect to redevelop the complex. The multi-year plan includes adding more residential and office space, as well as new public parks and entertainment venues.
Stantec has not yet said how much it will receive under this contract. However, thanks to deals like this, the company’s backlog was a record $7.0 billion as of March 31, 2024. That was also up 11.5% from the end of 2023.
Stantec’s revenue in the first quarter of 2024 rose 11.5%, to $1.37 billion from $1.23 billion a year earlier. Also, earnings before unusual items gained 23.3%, to $0.90 a share (or a total of $103.0 million) from $0.73 a share (or $80.9 million).
The shares have gained over 30% in the past year. Even so, they still trade at a reasonable 24.4 times the company’s projected 2024 earnings of $4.27 a share.
With the April 2024 payment, Stantec raised your quarterly dividend by 7.7%. Investors now receive $0.21 a share instead of $0.195. The new annual rate of $0.84 yields 0.7%.
Including this latest increase, Stantec’s dividend has grown at an average annual rate of 7.7% in the past five years. The stock holds an Above Average TSI Dividend Sustainability Rating.
Recommendation in The Successful Investor: Stantec Inc. is a buy.
