ARE: Record Backlog And New Contracts Will Support Steady Earnings Outlook

Analysts have increased their average price target on Aecon Group, reflecting recent raises from firms such as RBC Capital, CIBC, ATB Capital and Stifel. They point to improved margin expectations and a modestly lower perceived risk profile, which are reflected in our updated discount rate and profit margin assumptions.

Analyst Commentary

Recent research updates on Aecon Group reflect a more nuanced stance from the Street, with higher price targets balanced by a tempering of rating enthusiasm. Analysts are broadly acknowledging improved fundamentals while also recognizing that the stock’s strong run has brought valuation closer to fair value.

Bullish Takeaways

• Bullish analysts have raised their price targets into the mid C$20s to mid C$30s range, signaling increased confidence in Aecon’s earnings power and balance sheet resilience.
• Target hikes are grounded in expectations for stronger project execution and higher, more sustainable margins, which support a case for multiple expansion from prior discounted levels.
• Improved visibility on the project backlog and reduced perceived risk around legacy projects are seen as key drivers for more stable cash flow and enhanced free cash generation over the medium term.
• Some research notes point to a healthier risk reward profile, with upside tied to continued de-risking of large contracts and disciplined bidding on new work.

Bearish Takeaways

• Bearish analysts have shifted ratings down to more neutral stances, arguing that a portion of the margin recovery and balance sheet improvement is already reflected in the current share price.
• There is caution that execution missteps on newer large-scale projects or macro-driven delays in infrastructure spending could pressure near term earnings and limit upside to current valuation.
• Some see the higher targets as largely catch up to the stock’s recent performance rather than a signal of significantly stronger long term growth, suggesting a more range bound outlook.
• Concerns remain that competition in key end markets and potential cost inflation could cap further margin expansion, restraining the pace of any re rating from here.

What's in the News

• Aecon issued new financial guidance indicating revenue in 2025 is expected to exceed 2024 levels, supported by a record $10.8 billion backlog, strong recurring programs, a solid bid pipeline, and recent strategic acquisitions, with additional revenue growth anticipated in 2026 (Corporate guidance).
• Cascade Nuclear Partners, a 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. This is a flagship project in the emerging SMR market, with operations targeted for the 2030s (Client announcement).
• Aecon, through the Contrecoeur Terminal Constructors General Partnership, reached financial close on a $609 million design build contract for in water works on the Port of Montreal expansion. Aecon’s share has been added to its Construction backlog and construction is expected to run from 2026 to 2030 (Client announcement).
• The Montreal Port Authority confirmed the start of preparatory works for the Contrecoeur terminal expansion and formally awarded the $609 million water works contract to the CTCGP consortium led by Pomerleau and Aecon. This marks the transition into a new implementation phase for the project (Client announcement).
• Aecon updated its share repurchase activity, noting completion of a buyback tranche announced in July 2024 and a separate program announced in August 2025, with only modest capital deployed to date (Buyback tranche updates).

Valuation Changes

• The discount rate has decreased slightly from 8.33 percent to 8.23 percent, reflecting a modestly lower perceived risk profile and cost of capital.
• Revenue growth assumptions remain unchanged at approximately 15.92 percent annually, indicating a consistent view on Aecon’s potential for top line expansion.
• The net profit margin has risen slightly from 2.99 percent to 3.06 percent, signaling a modest improvement in expected profitability.
• The future P/E has declined modestly from 11.22x to 10.90x, implying a slightly lower valuation multiple on forward earnings despite similar growth assumptions.
• Fair value remains unchanged at CA$33.09 per share, as incremental improvements in margins and risk are seen as broadly offset within the overall valuation framework.