Disasters in Japan, ongoing nation-building in Iraq, anti-recessionary infrastructure upgrades in the U.S. and the list goes on. In short, it’s a good time for the infrastructure sector. If you can build it so that people can ride on it, water can flow through it or electricity can get from point A to Point B or energy can be extracted by it, then you’ll likely have more customers and revenue in the coming year. The headline effect of the Japanese disaster has given positive shots to many in the infrastructure space. Beyond the current excitability of the markets, sustained and positive growth over the medium-term seems possible for the following names.
AECOM Technology Corporation (ACM)
LA-based engineering and design firm AECOM has a global reach and its strengths are in particular demand in emerging markets. It operates with a market capitalization of 3.3 billion and currently has a forward P/E of 9.9 with EPS for this year projected to grow by 20.6%. Analyst consensus sees its current price of $26.9 as fair value territory, but with good news flowing in, such as the 40-million dollar it just signed for the DC Water Project, AECOM should ride along with the infrastructure wave.
We just previewed quarterly earnings expectations for Caterpillar here. Efficient and massive, with $68.4 billion in market capitalization, Caterpillar has EPS growth for this year topping 190%. Keeping a tight trendline since last July that has steadily worked its way higher, the projects seem to confirm a belief that this line can be held for a while longer despite some analysts stating a fair value at $95, $10 below where it is currently trading at $105.
Cement. That is the business of this Mexican group with $9.7 billion in capitalization. This input will be in high demand as concrete is poured for highways, ports and other large scale infrastructure projects. EPS for 2011 are targeted for 97% while 2012 growth upends this projection with estimates at 146%. The stock has had a somewhat steady decline-climb-decline pattern over the past 12 months and it looks near to the trough it hit last September. Adding more strength to the hypothesis that this trough should signal an inflection point is news that analysts have placed fair value at $14/share, far higher than its current $8.6/share.
After hitting analyst targets in the mid- to high-70s last month, it looks like some profit-taking has occurred to bring the share price down to $69/share. Catering to manufacturing, energy as well as utilities, Fluor is well levered to these sectors that all seem to be hitting good strides. EPS this year are, however, in negative territory, looking to drop by nearly 50%, but over the next 5 years, steady EPS growth is targeted at 8.5%. It may have had its run, or it might ride the wave further. It is worth some more research for investors interested in the infrastructure theme.
Foster Wheeler (FWLT)
Focused on the energy and utilities space, this global engineering and design group has its HQ in New Jersey while it is domiciled in Switzerland. It has ridden a strong energy wave over the past few years and with prices looking to remain high the impetus for more new extraction infrastructure could continue the winning streak. However, as with all things that are relatively undiversified and especially those tied to volatile commodities markets, it is a risk-reward calculation. EPS for this year are projected to dip by 38% while they are projected to rebound by a similar amount, 35%, next year. It is currently trading at $36/share with a forward P/E of 14.2 and PEG ratio of 1.7.
URS Corporation (URS)
An Engineering and Construction group with $3.7 billion in market capitalization, URS is currently trading at $45.5/share, just a couple pieces of change below fair estimate values. The stock marries a forward P/E of 12.8 with a PEG of 1.29 and modest, but steady EPS growth projections at 7.7%, 8.7% and 10.2% over the 2011, 2012 and 2016 horizons, respectively.
Jacobs Engineering (JEC)
Jacobs is currently trading at $48.7/share, some, including FBR Capital, have set targets for it in the high 50s. EPS are headed for a corrective (-37%) this year, but the path to EPS growth quickly renews by next year and continues through the 5-year projections. That said, its trailing 12-month Free Cashflow margin is only .5% as pointed out by our friends at Motley Fool, which doesn’t compare so well across its peer group.
Chicago Bridge & Iron (CBI)
Highly levered to the liquified natural gas (LNG) field, CBI, has derived a majority of its earnings from construction of related infrastructure over the past several years. Take a look at your own estimations of where you see construction in this sub-sector headed when considering whether CBI is a good match for your portfolio. It has a market capitalization of $3.9 billion and should have steady EPS growth, centered in the mid-teens, over the one-, two- and five-year benchmarks. That is something of a descent from great heights given its 66% growth in EPS over the past 5 years, but it is nothing to sneeze at either. It currently trades near the top of analyst targets at $38/share, but again, I’d advise looking at your thesis for the LNG sub-sector to see if this might be a good ancillary play to ties in with your infrastructure outlook.