The infrastructure industry is flourishing, fueled by rapid urbanization, increased global spending, and technological progress. The sector’s integration of digital innovation is set to change the future, ensuring its commitment to adapt to modern standards actively.

Additionally, worldwide capital projects and infrastructure spending is expected to reach $9 trillion in 2025, highlighting organizations’ increasing focus on infrastructure growth. Amid this, the railroads sector is also seeing much of this expected growth.

Coming with a safe and cost-effective nature, cargo transportation through railroads has become the norm, contributing to the industry’s growth. Moreover, the construction of high-speed railways in some parts of the United States has already been planned and is in motion, driving the sector’s prospects.

Here, L.B. Foster Company (FSTR - Get Rating) stands out as an unsung hero in the infrastructure industry owing to its technology offerings. The company’s shares have surged 40.5% over the past three months, closing the last trading session at $27.82

Now, let us dive deeper into the factors that could shape FSTR’s performance in the near future.

Recent Developments

Last year, FSTR announced a partnership with the Canadian National Railway (CN) to run a critical freight rail line while ensuring the safe passage of freight trains amid the constant threat of rockfalls and rockslides in the Canadian Rockies.

The partnership could enhance FSTR’s market position in the railroad industry and bring in stronger cash flows for the company.

Stable Historical Growth

Over the past three years, FSTR has demonstrated consistent growth across key financial metrics. Its revenue and EBITDA grew at a CAGR of 1.4% and 12.2%, respectively. Moreover, net income expanded at a CAGR of 91.9%, whereas its EPS grew at a CAGR of 90%.

Sound Financials

For the fiscal 2024 third quarter that ended September 30, 2024, FSTR’s total net sales amounted to $137.47 million. Its gross profit increased 19.5% from the year-ago value to $32.76 million.

Additionally, net income attributable to FSTR and EPS rose significantly from the prior year’s quarter to $35.91 million and $3.27, respectively. As of September 30, 2024, FSTR’s cash and cash equivalents amounted to $3.14 million, compared to $2.56 million on December 31, 2023.

Optimistic Analyst Estimates

Analysts predict FSTR’s revenue for the fiscal 2025 first quarter (ending in March) to increase 5.4% year-over-year to $131 million. Its EPS for the same period is expected to come in at $0.23. In addition, the company exceeded the consensus revenue estimates in three of the four trailing quarters.

Looking at the full fiscal year ending December 2025, FSTR’s revenue is forecasted to rise 7.2% year-over-year to $572.53 million. Its EPS for the period is expected to amount to $1.85.

High Profitability

FSTR’s trailing-12-month net income margin of 7.96% is 22.8% higher than the industry average of 6.48%. Its trailing-12-month ROCE stands at 26.42%, 95.8% higher than the industry average of 13.50%.

In addition, the company boasts a trailing-12-month ROTA of 12.41%, which is 136% higher than the sector average of 5.26%. Also, the stock’s trailing-12-month asset turnover ratio of 1.58x is 101.6% higher than the industry average of 0.79x.

Discounted Valuation

FSTR is currently trading at a forward EV/Sales of 0.69x, which is 65.6% lower than the industry average of 2.01x. Moreover, the stock’s forward EV/EBIT multiple stands at 16.32, 5.3% lower than the industry average of 17.23x.

Additionally, it has a forward Price/Sales multiple of 0.55, which is 65.6% lower than the industry average of 1.59x. This indicates that FSTR is undervalued compared to the broader market, offering potential upside for investors.

POWR Ratings Reflects Optimism

FSTR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

FSTR has a B grade for Quality, supported by profitability measures that exceeded industry benchmarks. Moreover, it earned a B grade for Value, driven by its discounted valuation metrics relative to the industry average. Also, the stock earns a B for Sentiment, which is in line with the optimistic analyst estimates.

FSTR has topped the B-rated 16-stock Railroads industry. Beyond what is stated above, we have also given FSTR grades for Momentum, Stability, and Growth. Get all FSTR ratings here.

Bottom Line

Driven by an increasing focus on infrastructure development, FSTR has managed to secure a prime position in the highly competitive industry. With offerings catering to railroad construction and related technologies, the company’s growth prospects seem bright.

Given FSTR’s impressive analyst estimates, high profitability, and attractive valuation, now could be the ideal time to consider adding the stock to one’s portfolio.

How Does L.B. Foster Company (FSTR) Stack Up Against Its Peers?

Although FSTR’s near-term outlook appears sound, it may be worthwhile to explore its industry peers, who also exhibit strong POWR Ratings. So, consider these B (Buy) rated stocks from the Railroads industry:

Westinghouse Air Brake Technologies Corporation (WAB - Get Rating)

East Japan Railway Company (EJPRY - Get Rating)

FreightCar America, Inc. (RAIL - Get Rating)

To explore more A or B-rated Railroads stocks, click here.

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FSTR shares were unchanged in premarket trading Wednesday. Year-to-date, FSTR has gained 3.42%, versus a 3.15% rise in the benchmark S&P 500 index during the same period.

About the Author: Aritra_Gangopadhyay

Aritra is a financial journalist dedicated to breaking down complex financial topics into simple, actionable insights. Holding a Master’s degree in Economics, he uses his analytical expertise to help investors uncover unique opportunities for long-term success. More...

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