US Infrastructure Bills And Urban Investment Will Fuel Sustainable Construction

Key Takeaways

• Robust infrastructure spending and demand for large-scale projects will drive long-term growth in core equipment sales and support a strong revenue backlog.
  
• Margin expansion is expected through operational improvements, high-margin acquisitions, and a strategic focus on sustainable, digital, and innovative product solutions.
  
• Heavy reliance on the U.S. market, limited product diversification, and exposure to macroeconomic, legislative, and integration risks threaten long-term growth, margins, and stability.

Catalysts

Designs, engineers, manufactures, markets, and services equipment and components used primarily in road building and related construction activities worldwide.

• Passage of U.S. infrastructure bills, increased state and local transportation contract awards, and ongoing multi-year federal funding are set to drive sustained, visible demand for Astec's core road construction and materials equipment, supporting long-term revenue growth.
  
• Accelerating investment in large-scale projects such as data centers, along with urbanization needs, will boost demand for concrete and asphalt production equipment-a core Astec market-which is expected to contribute positively to both revenue and backlog over several years.
  
• The recent acquisition of TerraSource, which delivers high-margin, recurring aftermarket parts revenue (63% of TerraSource revenue; 80% gross margin), is likely to enhance Astec's consolidated net margins and provide more stable, predictable earnings.
  
• Continued execution of operational excellence initiatives, manufacturing footprint optimization, procurement improvements, and Lean practices are driving material margin expansion and are expected to further improve EBITDA and net margins going forward.
  
• Astec's focus on digital solutions, new product development, and environmentally friendly technologies positions the company to capitalize on increasing customer and regulatory emphasis on sustainable construction practices, supporting both future revenue growth and margin resilience as the market shifts toward greener solutions.

Astec Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Astec Industries's revenue will grow by 9.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.5% today to 3.9% in 3 years time.
• Analysts expect earnings to reach $68.4 million (and earnings per share of $4.07) by about August 2028, up from $45.9 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 18.9x on those 2028 earnings, down from 22.8x today. This future PE is lower than the current PE for the US Machinery industry at 24.5x.
• Analysts expect the number of shares outstanding to grow by 0.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.

Astec Industries Future Earnings Per Share Growth

Risks

• Astec's high dependence on the U.S. market (approximately 80% of revenue) increases its vulnerability to U.S. infrastructure funding cycles and legislative risk; any slowdown in federal or state funding, delays in the reauthorization of infrastructure bills, or policy pivots toward greener alternatives could negatively impact long-term revenue and backlog stability.
  
• Persistent high interest rates and macroeconomic uncertainty are pressuring equipment dealers and end users, especially for mobile paving and forestry equipment, resulting in soft demand and sequential backlog declines in certain segments, which could lead to future declines in equipment revenue and operating margins.
  
• The company's product portfolio remains heavily weighted toward traditional construction solutions such as asphalt and aggregate equipment; insufficient diversification into electrified, hybrid, or digitally connected machinery may create long-term headwinds as end customers and governments accelerate the shift toward emission reductions and sustainable infrastructure, potentially impacting future sales and earnings growth.
  
• Astec's reliance on successful integration and performance of recent acquisitions (e.g., TerraSource) introduces execution risk; failure to realize planned synergies, align sales channels, or grow parts and service business as expected could suppress anticipated improvements to net margins and stable earnings streams.
  
• Ongoing external risks from a volatile global tariff environment, supply chain challenges, and commodity input costs (e.g., steel) could erode cost advantages currently supporting margins; any breakdown in procurement effectiveness or inability to pass through rising costs to customers would directly impact net margin and profitability.

Valuation

• The analysts have a consensus price target of $44.5 for Astec Industries 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 $1.7 billion, earnings will come to $68.4 million, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 8.1%.
• Given the current share price of $45.73, the analyst price target of $44.5 is 2.8% 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.