After the Election, 7 Major Infrastructure Winners for 2017 and Beyond

November 13, 2016 by Jon C. Ogg

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Source: Thinkstock
The presidential and congressional elections for 2016 have come and gone. Much of America may be divided on the results, but there are some serious business and economic policy changes coming down the pipe. The first order will be infrastructure. If you go back to Donald Trump’s speech after Hillary Clinton conceded, one of the top issues was rebuilding America’s aging infrastructure and the inner cities. This is going to represent a huge opportunity for the economy and for the investors who get the right calls on infrastructure.

24/7 Wall St. has tracked major infrastructure winners for years, with 11 would-be winners back in early 2013. Some of those companies have since merged. That was on the heels of the four-year report card from the American Society of Civil Engineers (ASCE). Another ASCE report card is due in late 2016 or in early 2017. The outcome is that the $2.75 billion needed to be spent on infrastructure to make America’s infrastructure great again will be well over $3 trillion now. A core problem of the past four years is that the massive spending boost for infrastructure just did not occur on any grand scale.

Here is a prediction for 2017 and beyond: Infrastructure spending is really going to happen this time around. A preview for the 2017 outlook from the ASCE already calls for higher spending in 10 infrastructure areas: aviation, bridges, drinking water, electricity, inland waterways, ports, commuter rail, roads, transit and wastewater.

Before investors just run out and invest blindly in infrastructure stocks, there are some serious realities that must be considered. Some of these stocks already have rallied handily higher since the November 8 closing bell before the election results were in. Some companies also have faced hard quarters with weak trends over the past few quarters.

It is very unlikely that this trend will be reversed with real spending dollars for several quarters ahead. It could even be years ahead in some cases before these companies realize the real benefits because large projects can take so long to come about. If you think getting an infrastructure contract from a federal, state or local government is easy or quick, guess again. Even in early August, well before the election and infrastructure paths were known, Barron’s published a report called ‘Infrastructure Stocks Look Overheated’ with a note that there had been a 17% jump in the iShares Global Infrastructure ETF.

It is important for investors to consider that when stocks run up on hopes of a quasi-secular or long-term thematic changes, sometimes the stock prices can run up too much. This means that nimble investors might want to consider these companies on pullbacks or only by averaging in slowly over time at lower or even higher prices. Piling into an “all-in” position at one time may work in theory, but it can also come with pain.

The Dow Jones Industrial Average was 18,332 on Tuesday’s pre-election final close, and Dow futures went down over 700 points before Trump’s speech in the wee hours of Wednesday morning. The Dow then rose for three straight days to close at 18,847 on Friday, after miraculously hitting all-time highs on Thursday.

Many other sectors other than infrastructure saw their shares witness major price changes this last week. There were nine major losers from Clinton not winning, and there were 11 immediate winners under a Trump victory. We also saw major rallies in the top banks and the hospital stocks get crushed.

24/7 Wall St. has included basic performance data on how well each of these key infrastructure stocks rose from Tuesday’s pre-election close by Friday’s close. We also included historical trading data, the consensus price target from Thomson Reuters and dividend information.

AECOM

Offering architecture and engineering design services, AECOM (NYSE: ACM) operates through three segments: Design and Consulting Services, Construction Services, and Management Services. It services the transportation, environmental and energy sectors, and it also serves key infrastructure projects such as highways, airports, bridges, wastewater facilities and power transmission and distribution. This puts AECOM right in the major infrastructure investing crosshairs for what you can expect ahead.

AECOM has a market value of about $5 billion now, versus $2.7 billion in early 2013. After acquiring URS, AECOM now has close to 92,000 employees around the world.

AECOM shares closed up just one cent at $32.22 on Friday, but this is a gain of 15.6% since Tuesday’s close and a gain of 19.7% from Friday to Friday. AECOM has a 52-week trading range of $22.80 to $36.20, and it has a consensus analyst price target of $34.67.

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Chicago Bridge & Iron

Chicago Bridge & Iron Co. N.V. (NYSE: CBI) went through a transformation after being covered in 2013. While technically a Dutch company, it has many Americans in the top ranks and throughout its ranks.

CB&I spent about $3 billion to acquire the Shaw Group, and its former 18,000 employees is now over 40,000 as a result. It also has over 80 U.S. offices. Its prior core areas included oil and gas infrastructure, steel plate structures and plant manufacturing. Shaw is a vertically integrated player in energy, chemicals, environmental, infrastructure and emergency response industries.

CB&I’s market cap was about $4.7 billion in 2013, but its energy influence weighed against it over the past two years and that market value is down to $3.2 billion now. The combined annual sales in 2013 were projected to be almost $12 billion back then, and that figure is expected to be about $11 billion in 2016. CB&I may have a dependence on energy infrastructure, but it can greatly dial up its efforts and win under an infrastructure theme.

CB&I shares closed down 1.5% at $30.57 on Friday, but Thursday’s closing price of $31.05 was up 10.5% since Tuesday’s close of $28.09. CB&I has a 52-week range of $26.12 to $43.17 and a consensus price target of $36.00, with a current dividend yield of 0.9%.

Fluor

Based in Irving, Texas, Fluor Corp. (NYSE: FLR) provides engineering, procurement, construction, maintenance and project management services to government and private industry. Its five groups are Oil & Gas, Industrial & Infrastructure, Government, Global Services, and Power. It had some 43,000 employees in 2013, but that is down to almost 39,000 on last look.

Fluor has a market value of almost $7 billion now, less than the $10.4 billion in 2013. It was projected to generate close to $29.5 billion in sales in 2013, and that is now closer to $19 billion.

Fluor shares closed down 2.5 % at $49.14 on Friday, but the $50.40 close on Thursday was actually up 13% since Tuesday’s pre-election close. Fluor has a 52-week range of $39.48 to $55.69, and the consensus price target is $49.26. Fluor pays a dividend yield of 1.7% to its shareholders.

Granite Construction

This civil engineering player in infrastructure projects works on streets and roads, highways and bridges, sites and underground, and power-related facilities, utilities and other large projects. Granite Construction Inc. (NYSE: GVA) also mines and processes aggregates and sells construction materials for operations of infrastructure and heavy construction. The company operates through Construction, Large Project Construction and Construction Materials segments.

While Granite Construction was smaller than most major players in 2013, its market cap has risen from $1.4 billion early in 2013 to $2.3 billion in late 2016. Revenues were less than $2.3 billion in 2013 and are expected to rise to $2.5 billion in 2016 and over $2.8 billion in 2017.

Granite Construction shares closed up 4.6% at $57.53 on Friday, but it was up right at 20% since Tuesday’s close. The 52-week range is $35.69 to $57.69, and the consensus price target is $56.75. The dividend yield is 0.9%.

Jacobs Engineering

Jacobs Engineering Group Inc. (NYSE: JEC) is based in Pasadena, California, and provides about every level of infrastructure planning and consulting. It serves government and private industry. The company had about 48,000 workers in 2013, and that is now closer to 50,000. Much of Jacobs Engineering’s effort is international and it has about 200 offices.

The market value of Jacobs was $5.9 billion early in 2013 and is $6.75 billion now. Its projected revenue for 2013 was roughly $13.1 billion, and it is expected to generate just over $11 billion in sales this year and next.

Shares of Jacobs Engineering managed to not have a third day rally like the sector, closing down 0.5% at $55.62 on Friday. Still, this stock was up 11% since Tuesday’s close. Its 52-week range is $34.76 to $56.69, and it has a consensus analyst target of $53.67. It pays no dividend at this time.

KBR

Houston, Texas, is the home of KBR Inc. (NYSE: KBR). For many years KBR was considered to be a war-support and disaster-support company, but if military activity and expansion will come about then it could be yet another win. KBR’s Government and Infrastructure business offers services to civilian authorities and private clients outside of the military. One thing that has helped KBR in the past was that it could mobilize workers for disaster assistance perhaps in a faster manner than any other company.

KBR had about 27,000 employees in 2013, but that was down to 22,000 on last look. The company has a large network of companies and individuals of subcontracting and support that makes the actual headcount harder to pinpoint when major projects are underway.

KBR has a market capitalization of about $2.3 billion now, far less than the $4.4 billion market value in early 2013. The expected sales of about $8.5 billion back in 2013 are now expected to be $4.3 billion in 2016 and $4.6 billion in 2017.

KBR shares closed up 2% at $15.94 on Friday, and they are up a sharp 20% since Tuesday’s close. KBR has a 52-week range of $11.61 to $19.94 and a consensus price target of $17.77. It also pays a dividend yield of 2%.

Tetra Tech

Shares of Tetra Tech Inc. (NASDAQ: TTEK) have surged over 2016. The company is based in Pasadena, California, and operates in two segments: Water, Environment and Infrastructure; and Resource Management and Energy. Tetra Tech is considered one of the greats when it comes to consulting, engineering, construction, technical services and project management in water infrastructure and resource management. It has about 16,000 employees, compared with 14,000 employees in early 2013.

The company had a market value of $1.8 billion in early 2013 and is valued at $2.3 billion now. Tetra Tech’s expected revenues in 2013 were $2.4 billion, and that is closer to $2.1 billion now.

This focus on water is of course a crucial area of need, and the company is also into remediation and environmental planning, disaster management and sustainability projects around climate change and carbon management. The biggest boost now and ahead has been a snag in the past in that Tetra Tech relies heavily on contracts from federal, state and local government agencies.

Tetra Tech shares closed flat at $39.65 on Friday, and the stock was up 4.3% since Tuesday’s close. While the gain might not be impressive here, a lot of great news has been priced in after a 60% year-to-date rise. Tetra Tech has a 52-week range of $22.85 to $40.10 and a consensus price target of $41.11. It also pays a dividend yield of 0.9%.

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Elsewhere in our infrastructure coverage and picks:

These are not solely the consulting and construction angle on infrastructure, and the materials and equipment players will be covered more in-depth at the start of this week.

As a final reminder, the recovery seen to new highs last week was far from the norm and caught many investors off guard, and it was undoubtedly magnified by short sellers panicking and covering their positions. We could very easily expect that some of these stocks could give back some of their gains in the days or weeks ahead.