Expansion Into Nuclear And Civil Infrastructure Will Improve Future Outlook

Key Takeaways

• Strategic acquisitions and a strong backlog are driving national growth and improving margin stability in Infrastructure and Industrial sectors.
  
• Focus on high-demand sectors supports consistent growth, while balanced capital allocation ensures returns to shareholders and funds for expansion.
  
• High reliance on strategic acquisitions and potential backlog conversion delays could impact financial performance and strain resources amid economic and geopolitical uncertainties.

Catalysts

Provides construction services in Canada.

• Bird Construction's strategic acquisitions, including companies like Jacob Bros, are expected to expand its national infrastructure presence and drive above-market growth, particularly in Infrastructure and Industrial sectors. This is likely to increase revenue significantly in the coming years.
  
• The company has a strong combined backlog of $7.6 billion with a healthy mix of low to medium risk collaborative contracts, which offer better margin profiles and greater margin stability. This is likely to enhance net margins and earnings.
  
• Bird Construction is focusing on high-demand sectors such as nuclear, civil infrastructure, and industrial maintenance, which are supported by long-term drivers and are less impacted by short-term economic and geopolitical uncertainties. This strategic focus is expected to support consistent revenue growth.
  
• The company plans to achieve 170 basis points of margin improvement to reach a target of 8% EBITDA margin by 2027. This margin expansion is expected to drive significant improvements in earnings.
  
• Bird Construction maintains a balanced capital allocation strategy, focusing on returning 33% of net income to shareholders while retaining funds for growth investments and M&A activities. This disciplined approach supports sustained EPS growth over the long term.

Bird Construction Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bird Construction's revenue will grow by 11.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.9% today to 4.6% in 3 years time.
• Analysts expect earnings to reach CA$217.8 million (and earnings per share of CA$3.93) by about April 2028, up from CA$100.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.8x on those 2028 earnings, down from 11.6x today. This future PE is lower than the current PE for the CA Construction industry at 37.1x.
• Analysts expect the number of shares outstanding to grow by 2.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.15%, as per the Simply Wall St company report.

Bird Construction Future Earnings Per Share Growth

Risks

• The company highlights that forward-looking information is inherently subject to significant business, economic, and competitive uncertainties and contingencies, which could lead to actual financial results differing materially from expectations, potentially impacting revenue and earnings.
  
• Adjustments to non-GAAP measures and changes in the definition of adjusted earnings could create inconsistencies when compared to peers, affecting the clarity of financial performance assessment, and could influence perceived earnings strength.
  
• Despite a large backlog, any delays in converting pending backlog to contracted work could impact the timing of revenue recognition and cash flows, potentially affecting net margins and earnings.
  
• Economic and geopolitical uncertainties, including trade tensions and tariffs, could introduce additional costs or delays, thereby impacting project costs and affecting profitability and net margins.
  
• A high reliance on strategic acquisitions for growth introduces integration risks and could strain financial resources if not properly managed, impacting future earnings and dividend sustainment.

Valuation

• The analysts have a consensus price target of CA$31.938 for Bird Construction 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$36.0, and the most bearish reporting a price target of just CA$26.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$4.7 billion, earnings will come to CA$217.8 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 7.2%.
• Given the current share price of CA$20.93, the analyst price target of CA$31.94 is 34.5% 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.