New Infrastructure Projects In Canada And US Will Strengthen Future Market Position

Key Takeaways

• Anticipated recovery in Canadian markets and U.S. elections clarity could drive future revenue growth from delayed projects.
  
• Strategic manufacturing capacity use and fleet expansions promise potential earnings improvement despite varying market utilization.
  
• Regional demand uncertainties and reliance on future projects introduce execution risks, while cautious capital expenditure and potential political impacts may affect revenue and margins.

Catalysts

Provides non-destructive excavating and related services in Canada and the United States.

• The anticipated recovery in the Canadian markets, particularly with delayed projects expected to start in the first half of 2025, suggests future revenue growth as these projects get underway.
  
• The potential clarity from the U.S. elections could lead to the commencement of stalled projects, particularly in renewable energy sectors, which could drive an increase in revenue.
  
• Badger's ability to capitalize on projects across various infrastructure sectors, including data centers and energy plants, indicates potential for future revenue increases and margin expansion.
  
• Efforts to maintain strong pricing strategies despite lower utilization in some markets are likely to sustain or improve net margins.
  
• Potential strategic use of manufacturing capacity and expansions in the fleet under the NCIB could improve future earnings.

Badger Infrastructure Solutions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Badger Infrastructure Solutions's revenue will grow by 9.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.7% today to 12.9% in 3 years time.
• Analysts expect earnings to reach $124.4 million (and earnings per share of $3.37) by about February 2028, up from $41.7 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 11.6x on those 2028 earnings, down from 23.3x today. This future PE is lower than the current PE for the CA Construction industry at 35.8x.
• Analysts expect the number of shares outstanding to decline by 0.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.08%, as per the Simply Wall St company report.

Badger Infrastructure Solutions Future Earnings Per Share Growth

Risks

• The slowdown in key markets such as California, the Southwest, and parts of the Upper Midwest and Mid-Atlantic, along with a 12% decrease in Canadian revenue, highlights regional demand uncertainties which could affect overall revenue growth.
  
• The reliance on future projects and market recovery in Canada by 2025 introduces execution risk, possibly impacting revenue if these projects face further delays or cancellations.
  
• The potential impact of U.S. political outcomes on project incentives and energy sector priorities could lead to revenue volatility depending on the administration in power after elections.
  
• The decision to manufacture fewer trucks and retire more units indicates cautious capital expenditure, which might suggest concerns over future demand growth and could impact earnings if demand outstrips fleet capacity.
  
• Unchanged or slightly improving gross profit margins suggest challenges in fleet utilization, which may hinder the ability to translate revenue growth into improved net margins.

Valuation

• The analysts have a consensus price target of CA$49.594 for Badger Infrastructure Solutions 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$55.0, and the most bearish reporting a price target of just CA$45.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $965.0 million, earnings will come to $124.4 million, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of CA$40.57, the analyst price target of CA$49.59 is 18.2% 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.