Focus On Energy Transition And Infrastructure Will Deliver Long-term Opportunities

Key Takeaways

• Strategic focus on high-margin sectors and disciplined project selection is expected to improve net margins and earnings.
  
• Growing backlog and strategic acquisitions position Bird for consistent revenue growth and long-term earnings expansion.
  
• Delays in project starts, reliance on large capital investments, and acquisition costs could pressure Bird Construction's revenue, margins, and cash flow stability.

Catalysts

Provides construction services in Canada.

• Bird's strategic focus on high-margin sectors and disciplined project selection is expected to result in continued margin accretion, which could positively impact net margins and earnings.
  
• The company's significant and growing backlog, with higher embedded margins, positions it for consistent revenue growth, indicating potential future earnings expansion.
  
• Bird's acquisition of Jacob Bros, which is accretive to margins, is expected to enhance revenue and EBITDA margins, contributing to overall earnings growth.
  
• Strategic investments in key sectors, such as energy transition and infrastructure, provide robust long-term growth opportunities, likely impacting future revenue streams.
  
• The company's focus on expanding self-perform capabilities and cross-selling opportunities is anticipated to drive incremental margin improvement, positively affecting net margins and profitability.

Bird Construction Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bird Construction's revenue will grow by 12.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.8% today to 5.2% in 3 years time.
• Analysts expect earnings to reach CA$242.6 million (and earnings per share of CA$4.36) by about February 2028, up from CA$91.5 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 10.6x on those 2028 earnings, down from 14.9x 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 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 7.01%, as per the Simply Wall St company report.

Bird Construction Future Earnings Per Share Growth

Risks

• Delays in the start of new projects due to permitting issues could impact Bird Construction’s revenue growth, pushing anticipated work into 2025.
  
• The company's growth relies on large capital investment projects, which may be subject to economic cycles and unforeseen changes in government spending, potentially affecting future revenue streams.
  
• An increase in general and administrative expenses due to acquisitions and integration costs could pressure net margins despite revenue growth.
  
• Seasonal fluctuations and investments in non-cash working capital could impact short-term operating cash flows, affecting liquidity and earnings stability.
  
• The company's revenue growth is partially driven by M&A activity, which carries integration risks and could weaken financials if not managed effectively.

Valuation

• The analysts have a consensus price target of CA$35.125 for Bird Construction based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$4.6 billion, earnings will come to CA$242.6 million, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of CA$24.65, the analyst price target of CA$35.12 is 29.8% 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.