Electrification And Water Infrastructure Tailwinds Will Support A Stronger Long Term Outlook

Catalysts

About Shimmick

Shimmick is a construction and engineering company focused on complex water, electrical, and broader infrastructure projects across key U.S. regions.

What are the underlying business or industry changes driving this perspective?

• Exposure to growing U.S. investment in critical water infrastructure, including treatment, flood resilience, and quality upgrades in regions such as the West Coast and Texas, supports a larger opportunity set for project awards. This can lift revenue and backlog conversion into earnings over time.
• Rising demand for electrical work tied to electrification, manufacturing facilities, ports, and mission critical assets such as data centers creates a broader mix of higher value projects. This can support top line growth and a richer gross margin profile as these jobs ramp.
• Consistent high bidding volumes, a 12 month outlook of more than $9 billion in opportunities, and a book to burn ratio of 1.7 with backlog at $754 million point to a fuller order book that can provide better visibility for revenue and help smooth earnings as contracts convert.
• A growing tilt toward core Shimmick projects, which represented over 75% of third quarter revenue and 86% of backlog, together with operational improvements that lifted core project gross margin, supports the case for more stable margins and improved net earnings as non core work winds down.
• Expanding electrical capabilities through Axia, including data center and industrial bids across Texas and the Southeast, increases Shimmick’s role in long lived technology and power infrastructure programs. This can support longer duration revenue streams and potentially more resilient EBITDA.

Assumptions

This narrative explores a more optimistic perspective on Shimmick compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Shimmick's revenue will grow by 4.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -12.3% today to 2.1% in 3 years time.
• The bullish analysts expect earnings to reach $12.1 million (and earnings per share of $0.33) by about January 2029, up from $-61.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 26.9x on those 2029 earnings, up from -2.4x today. This future PE is lower than the current PE for the US Construction industry at 36.6x.
• The bullish analysts expect the number of shares outstanding to grow by 4.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.21%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The business is still carrying non core legacy projects that management expects to run through to the end of 2026, and guidance implies these projects could represent closer to 20% of 2025 revenue with gross margins in a range between a 15% loss and a 5% loss. This may continue to weigh on consolidated gross margin and adjusted EBITDA if costs run higher than expected.
• Third quarter 2025 adjusted EBITDA of $4 million compares to $30 million in the prior year quarter that was supported by a one time claim settlement. The company still reported a net loss of $4 million, so if project mix, G&A and project execution do not improve fast enough, the path to sustained profitability and stronger earnings could be slower than bullish expectations assume.
• The long term focus on large water, electrification, industrial and data center projects ties Shimmick closely to U.S. public funding cycles and long lived private capital programs. Any slowdown, delay in awards, or contract repricing in these areas could pressure backlog conversion, which would affect revenue and project level margins.
• Electrical work through Axia and an increasing share of negotiated and specialty contracts may raise the company’s exposure to complex mission critical projects in regions like Texas and the Southeast. Execution missteps or cost overruns on these higher value jobs could compress gross margins and adjusted EBITDA even if headline backlog remains high.
• The shift toward a higher mix of negotiated work with a target of 50% of backlog by 2027 represents a multiyear transition. Any difficulty in winning enough suitable negotiated projects at attractive terms could leave the company more reliant on fixed price bidding, which tends to carry higher cost risk and could weigh on net income and cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Shimmick is $6.0, which represents up to two standard deviations above the consensus price target of $4.5. This valuation is based on what can be assumed as the expectations of Shimmick's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.0, and the most bearish reporting a price target of just $3.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $569.0 million, earnings will come to $12.1 million, and it would be trading on a PE ratio of 26.9x, assuming you use a discount rate of 10.2%.
  
• Given the current share price of $4.02, the analyst price target of $6.0 is 33.0% 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.