North American Tolls Will Crumble As Regulatory Pressures Intensify

Key Takeaways

• Overvalued revenue and asset growth may face headwinds if toll price increases, urban expansion trends, or US infrastructure momentum moderate or reverse.
  
• Reliance on green transition projects and an asset-light strategy is exposed to regulatory, funding, and execution risks that could compress future margins and profits.
  
• Strong North American growth, a robust project pipeline, strategic asset optimization, and sector-tailwinds position Ferrovial for stable, recurring, and expanding returns.

Catalysts

Engages in the design, construction, financing, operation, and maintenance of transport infrastructure and urban services internationally.

• The market may be attributing too much value to Ferrovial's assets based on outsized recent increases in toll rates and revenue per transaction, which are partly a function of dynamic pricing and aggressive promotions-both of which may not be sustainable if macroeconomic or regulatory environments change. This could lead to slower future revenue growth or even a reversal if price elasticity is higher than assumed, compressing top-line growth.
  
• Expectations for perpetual high growth in North American infrastructure revenues may be too optimistic, as current performance is significantly boosted by rapid urban expansion and economic activity in U.S. cities-which may face eventual demographic stagnation or competition from alternative mobility solutions, potentially reducing long-term traffic volumes and, consequently, earnings.
  
• Significant optimism appears to be embedded around Ferrovial's positioning in the green transition, as seen by the refinancing of the JFK New Terminal One with green bonds and assertive capital allocation. However, increased regulatory complexity, stricter climate policies, and rising costs for sustainable construction could erode margins and slow project approvals, negatively impacting future profit margins and earnings visibility.
  
• The asset-light model and continual recycling of capital into early-stage projects is currently enhancing return metrics, but if macro or industry trends shift (e.g., higher interest rates, tighter funding, elevated competition or delays), new projects may not match the returns of recently divested mature assets, resulting in lower future ROIC and possible downward pressure on net profit growth.
  
• Market valuation may be overestimating Ferrovial's ability to consistently win and execute large U.S. PPP infrastructure projects, as higher bidding costs, increasing competition from global players, and rising financing costs could reduce historical win rates and margins-ultimately softening long-term revenue and earnings growth trajectories.

Ferrovial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ferrovial's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 35.8% today to 8.0% in 3 years time.
• Analysts expect earnings to reach €843.2 million (and earnings per share of €1.31) by about August 2028, down from €3.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €1.1 billion in earnings, and the most bearish expecting €652 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 49.4x on those 2028 earnings, up from 10.2x today. This future PE is greater than the current PE for the GB Construction industry at 25.9x.
• Analysts expect the number of shares outstanding to decline by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.55%, as per the Simply Wall St company report.

Ferrovial Future Earnings Per Share Growth

Risks

• Sustained robust growth in North American assets, underpinned by double-digit revenue and EBITDA increases in key toll roads (like 407 ETR and U.S. Managed Lanes), suggests strong local economic and demographic trends that could continue driving higher revenues and stable or expanding margins.
  
• A record-high order book (€17.3 billion), including 45% exposure to North America and multiple pre-awarded projects, provides multi-year revenue visibility and mitigates cyclicality risks, supporting steady future earnings.
  
• Continuous portfolio optimization-including divestment of lower-growth assets and reinvestment in high-performing concessions (e.g., additional 407 ETR stake, JFK Terminal project)-coupled with active capital recycling, positions Ferrovial to capture higher returns and improve overall ROIC.
  
• Structural sector tailwinds-such as increasing emphasis on user-pays infrastructure, growth of public-private partnerships, and favorable regulatory shifts like the U.S. TIFIA framework expansion-are likely to boost project opportunities and support recurring, inflation-protected revenue streams.
  
• Effective use of dynamic pricing and targeted promotions in toll road assets, coupled with high levels of pricing freedom (no soft cap on I-77/I-66), enables Ferrovial to capture added value per transaction, protect margins amid fluctuating volumes, and drive higher aggregate cash generation and dividend potential.

Valuation

• The analysts have a consensus price target of €46.987 for Ferrovial 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 €56.0, and the most bearish reporting a price target of just €38.8.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €10.5 billion, earnings will come to €843.2 million, and it would be trading on a PE ratio of 49.4x, assuming you use a discount rate of 7.5%.
• Given the current share price of €47.43, the analyst price target of €46.99 is 0.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.