ARE: Record Backlog And New Contracts Will Support Steady Medium Term Earnings

Aecon Group's analyst price target has inched higher to C$30, up from a prior consensus closer to the mid C$20s. Analysts cite modestly stronger revenue growth expectations, a slightly lower perceived risk profile, and a marginally higher future earnings multiple, despite some recent rating downgrades.

Analyst Commentary

Recent Street research shows a more nuanced backdrop for Aecon Group, with a mix of target hikes and rating downgrades that collectively support a higher but more cautiously framed valuation narrative.

Bullish Takeaways

Bullish analysts lifting price targets into the C$24 to C$30 range underscore improving confidence in Aecon's earnings power and cash flow durability, supporting a re-rating from prior trough multiples.
The higher targets suggest expectations that Aecon can execute on its backlog and infrastructure pipeline sufficiently to deliver mid cycle growth, even if headline top line expansion remains modest.
Supportive views emphasize that balance sheet risk and project execution volatility have eased relative to prior years, warranting a slightly richer valuation multiple versus its own history.
Some research points to a more constructive multi year infrastructure spending environment in Canada, which could provide a tailwind to medium term revenue visibility and justify the incremental upside embedded in new targets.

Bearish Takeaways

Bearish analysts moving ratings down to more neutral stances indicate concern that much of the near term improvement is already reflected in the share price, limiting upside versus the new C$30 level.
Downgrades around the C$32 to C$35 target range signal worries about execution risk on large projects and the potential for cost overruns, which could pressure margins and challenge the current earnings trajectory.
Cautious views highlight that Aecon remains exposed to cyclical swings in public and private capital spending, raising the risk that growth expectations embedded in recent target hikes may prove optimistic.
There is also some skepticism that Aecon can consistently convert its backlog into higher quality, higher margin earnings, leaving the stock vulnerable if delivery or bid discipline falls short of expectations.

What's in the News

Aecon issued new financial guidance indicating revenue in 2025 is expected to be stronger than 2024, supported by a record $10.8 billion backlog, robust recurring revenue programs, a strong bid pipeline, and recent strategic acquisitions, with further revenue growth anticipated in 2026 (company guidance).
Cascade Nuclear Partners, an equal joint venture including Aecon, is finalizing negotiations with Energy Northwest to design and build the first four Xe-100 small modular reactors in Washington state, a flagship clean energy project targeted to begin construction by the end of the decade (client announcement).
Aecon, through the Contrecoeur Terminal Constructors General Partnership with Pomerleau, reached financial close on a $609 million design build contract for the Port of Montreal expansion in water works. Aecon’s share is expected to be added to its Construction backlog in the fourth quarter of 2025 (client announcement).
The Montreal Port Authority confirmed preparatory work is starting on the Contrecoeur terminal expansion and formally awarded the $609 million in water works contract to the CTCGP consortium of Pomerleau and Aecon. Major construction is expected to begin in 2026, pending final authorizations (client announcement).
Under its share buyback program announced in July 2024, Aecon has repurchased 652,650 shares, or about 1.04 percent of shares, by August 2025. A separate tranche announced in August 2025 reported no repurchases over the initial period (buyback update).

Valuation Changes

The Fair Value Estimate has risen slightly to CA$33.18 from CA$33.09, reflecting a modest uplift in the intrinsic value outlook.
The Discount Rate has fallen slightly to 8.17 percent from 8.23 percent, implying a marginally lower perceived risk profile in the updated model.
Revenue Growth has inched higher to 15.93 percent from 15.92 percent, signaling a very small upgrade to forward top line expectations.
The Net Profit Margin has edged down to 3.04 percent from 3.06 percent, indicating a marginally softer profitability assumption.
The Future P/E has increased slightly to 11.0x from 10.9x, pointing to a modestly higher valuation multiple applied to expected earnings.

Strategic focus on energy transition infrastructure, collaborative contracts, and recurring revenue streams is strengthening margin stability and reducing earnings volatility.
Enhanced balance sheet and market positioning support sustained growth, expanded project opportunities, and optionality for margin and earnings expansion.
Margin pressure, reliance on government projects, labour shortages, acquisition risk, and contract structures collectively limit Aecon's long-term earnings growth and profit expansion potential.

Catalysts

About Aecon Group

Aecon Group Inc., together with its subsidiaries, provide construction and infrastructure development services to private and public sector clients in Canada, the United States, and internationally.What are the underlying business or industry changes driving this perspective?

Accelerating investment in energy transition and decarbonization infrastructure (such as grid-scale energy storage, nuclear refurbishment, and electrification projects) is driving robust demand for Aecon's core capabilities, supported by record backlog and multi-year project pipelines-positively impacting revenue growth and order book visibility.
Increased public spending on infrastructure-driven by urbanization, population growth, and the need to upgrade aging assets in Canada and the U.S.-is expanding Aecon's addressable markets, supporting sustained growth in top-line revenue and reducing reliance on one-off projects.
Aecon's strategic pivot toward a higher mix of collaborative, non-fixed price contracts (now 76% of backlog) and recurring revenue segments like utilities and concessions is improving earnings quality and margin stability, likely supporting better net margins and mitigating volatility from legacy fixed-price projects.
Significant progress in deleveraging, balance sheet strengthening, and disciplined capital allocation-including successful integration of targeted acquisitions-has created financial headroom for larger project bids and further M&A, providing optionality for earnings and margin expansion.
Aecon's growing expertise and market position in nuclear and power transmission, alongside successful project delivery and potential for additional wins in both the Canadian and U.S. markets, positions the company to capture outsized share of secular industry growth, boosting long-term revenue and profitability.

Aecon Group Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Aecon Group's revenue will grow by 5.9% annually over the next 3 years.
Analysts assume that profit margins will increase from 0.5% today to 3.2% in 3 years time.
Analysts expect earnings to reach CA$184.9 million (and earnings per share of CA$1.6) by about September 2028, up from CA$24.9 million today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.4x on those 2028 earnings, down from 52.0x today. This future PE is lower than the current PE for the CA Construction industry at 24.5x.
Analysts expect the number of shares outstanding to grow by 1.09% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.45%, as per the Simply Wall St company report.

Aecon Group Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Aecon's declining construction EBITDA margin (from 8% last year to 6.8% this year, and just 6.2% in the most recent quarter) indicates that margin compression remains an ongoing risk despite topline growth, with management noting lower gross profit in some segments and explicitly trading margin for risk reduction, potentially impacting long-term earnings and net margins.
High reliance on public sector, utilities, and power infrastructure projects exposes Aecon to potential shifts in government policy, fiscal austerity, and regulatory delays-particularly in the US given recent political uncertainty and in Canada if fiscal priorities change-which could constrain future backlog conversion into revenues.
Ongoing skilled labour shortages and competition for talent in construction remain acute, with Aecon acknowledging the need for careful workforce management as project demand accelerates; persistent labour constraints could drive up costs and delay project execution, negatively affecting margins and realized earnings.
Aecon's recent and anticipated growth relies significantly on large acquisitions (e.g., Xtreme, United, Ainsworth) and expanding US operations, but integration risks and cyclicality in private industrial contracting (e.g., project delays from clients like Dow Chemical) add volatility to revenue consistency and risk underperformance in sectors outside the core Canadian market.
While the substantial shift toward collaborative, non-fixed price contracts has improved backlog quality and reduced risk of major write-downs, management conceded that these contracts offer less room for upside margin, potentially capping profit growth during periods of industry outperformance and limiting long-term upside in net margin expansion.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of CA$23.273 for Aecon Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$28.0, and the most bearish reporting a price target of just CA$19.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$5.8 billion, earnings will come to CA$184.9 million, and it would be trading on a PE ratio of 10.4x, assuming you use a discount rate of 8.4%.
Given the current share price of CA$20.4, the analyst price target of CA$23.27 is 12.3% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

Have other thoughts on Aecon Group?

Create your own narrative on this stock, and estimate its Fair Value using our Valuator tool.

Create Narrative

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analyst Views Mixed as Aecon Group Sees Higher Price Target and Improved Outlook