For a variety of reasons, a building boom is rolling across the United States, and companies providing building and infrastructure services are reaping the benefits. Three companies profiting from this dash to build, in slightly different ways, are IES Holdings (IESC), Itron (ITRI) and Jacobs Engineering (J).
Before the covid pandemic there was a housing shortage in the U.S.
Post pandemic, more people, especially millennials, are moving to the suburbs from large cities. Interest rates have locked current homeowners, who refinanced their mortgages in the 2-3% range, in place as they are loath to roll to a 7% mortgage. And, for the first time in modern history, homebuilders have taken a measured approach to providing new homes, and not overbuilt.
The result…a more severe housing shortage post pandemic, exacerbated by the factors I enumerated above.
As a result, companies like IES Holdings (IESC) are building huge backlogs as demand for their services is rock solid. IES provides electrical, HVAC, and plumbing services for new home construction.
This residential focused unit of IES comprises 52% of the company as of its latest annual numbers for 2022. The company also has a data and technology infrastructure business (can you say AI data centers), a power and electrical infrastructure business, and a commercial and industrial electrical business that rounds out the other 48% of revenue.
Given it’s business of teaming with homebuilders, whose stocks have been on a tear the past year, it’s no surprise that IES rates as the number one POWR Rating stock in the industrial services industry. The company out ranks 99.79% of all other U.S. stocks, and has a ranking in ALL of the POWR Ranking categories in excess of 75%, a rare feat.
Over the past 5 years, revenue in the residential segment alone, which is made up of 73% single family homes, has had a compound annual growth rate (CAGR) of 33%. While the technology infrastructure business has achieved a revenue CAGR of 20%.
As of the company’s Q3 report in late June, Operating Income had increased a whopping 244% YoY. Earnings per share were up an astounding 145% QoQ, and an astonishing 306% YoY (I like adjectives that begin with the letter A a lot when it comes to money).
With no end to the housing shortage in site…arguably it gets worse…IES should continue its stellar performance for the foreseeable future.
One step up the food chain from IES is Itron (ITRI). Itron makes electric, gas, and water metering devices, but with a twist. These aren’t your father’s metering devices…they are smart as a whip.
Itron’s devices not only report usage, like any old meter, but improve efficiency, such as moving your power consumption from electrical to gas at peak hours, provide safety, the meters monitor for water quality and detect disconnects in the water line, and they even work with a variety of other technologies provided by companies other than Itron…I believe the word in computerese is interoperability.
ITRI has an overall A rating in our POWR Rating system, but really shines in the category of Growth. Itron outranks 99.48% of all other U.S. companies on our Growth scale.
In its latest earnings report last month, Itron reported YoY top line revenue growth of 25%, with $541 million in revenue. The company increased cash and cash equivalents almost 19% to $232 million while holding long term debt steady at $453 million. Quarterly gross margins came in a touch over 32%.
Continued infrastructure investments and upgrades, along with the continued buildout of new communities, bodes well for ITRI moving forward. The stock traded well over $100 pre pandemic, and while it has rebounded this year, it still trades only in the mid-$60s.
Finally, if we’re talking infrastructure I would be remiss if I didn’t give a shout out to one of the granddaddies of the infrastructure and engineering game, Jacobs Engineering (J).
I guess the question would be “What does Jacobs Engineering not do?”, as the company works in industries from energy, to infrastructure, to national security, to space. But I think a great indicator of the role Jacobs plays in infrastructure is the contract the company signed a few weeks ago with National Grid (NGG).
Basically, Jacobs signed on to provide consulting and support services for National Grids overall business operations. National Grid is the largest electrical operator in the U.K. and one of the largest in the U.S. Needless to say, Jacobs is heavily involved in the upgrade, maintenance, and transition of the electrical grid to a carbon neutral stance.
Jacobs rates a B in our POWR Ratings overall, with its highest score in the sentiment category, where it comes in above almost 92% of U.S. companies. This may be because a large portion of Wall Street thinks Jacobs Engineering when they hear the U.S. government is spending much needed money on infrastructure.
Just a few numbers, last month Jacobs reported revenue of $4.2 billion, a 9.4% YoY increase. The company currently has a PE of just under 23. And, Jacobs net margins as of the end of jJune were running at 4.65%.
I don’t see anything changing in the near future that would darken the outlook for these three stocks. They should continue to benefit in the current environment. Borrowing a phrase from the energy sector…I think it’s not “drill, drill, drill” here but “build, build, build”.
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IESC shares were trading at $72.66 per share on Thursday morning, down $0.06 (-0.08%). Year-to-date, IESC has gained 104.27%, versus a 16.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA. More...
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