AGX: AI-Driven Gas Projects Will Support Backlog While Execution Risks Persist

Analysts have raised their price target on Argan to $361 from $295.75, citing the company’s unique leverage to growing combined cycle gas power generation demand, a deepening multi-year backlog, and expanding gas turbine pricing tailwinds that support a higher future earnings multiple, despite slightly tempered growth and margin assumptions.

Analyst Commentary

Bullish analysts emphasize that Argan’s role as a pure play contractor on combined cycle gas projects positions the company as a direct beneficiary of structurally higher power demand, particularly from artificial intelligence data centers. They point to a growing pipeline of large gas-fired projects and a record backlog as key supports for sustained revenue and earnings growth.

Recent price target increases, along with initiation at premium targets from major firms, reflect confidence that Argan’s earnings power and cash generation are still underappreciated in the current valuation. Analysts argue that the combination of robust project visibility, favorable gas turbine pricing, and disciplined balance sheet management can support a higher multiple over the medium term.

Bullish Takeaways

• Bullish analysts see Argan as a leading direct way to gain exposure to the combined cycle gas buildout, which they believe supports above-market growth and provides justification for higher long term valuation multiples.
• Multi year visibility from record backlog, including new large scale Texas gas projects, underpins forecasts for strong topline and EBITDA growth into 2027 and beyond.
• Favorable gas turbine pricing and Argan’s localized scale in high growth regions are expected to drive margin expansion and upside versus current Street estimates.
• Major firms such as Goldman and JPMorgan highlight the company’s strong balance sheet and exposure to AI driven power demand as catalysts for continued rerating and positive estimate revisions.

Bearish Takeaways

• Bearish analysts caution that Argan’s concentration in large gas generation projects could expose results to project timing risk and permitting or regulatory delays, adding volatility to quarterly execution.
• Staffing constraints and the need for regional cross staffing to deliver multiple large projects simultaneously could pressure execution quality and limit upside if workloads peak faster than expected.
• Expectations for 4 to 5 GW of annual capacity additions and sustained pricing tailwinds may prove optimistic if macro conditions soften or if alternative generation sources reclaim share.
• With the stock already reflecting higher growth and margin assumptions, any slip in backlog conversion or delays in new awards could lead to multiple compression from elevated valuation levels.

What's in the News

• Gemma Power Systems secured an EPC contract and full notice to proceed for an approximately 860 MW natural gas fired power plant in the ERCOT market. The full contract value is expected to be added to Argan's October 31, 2025 project backlog (Key Developments).
• Argan's subsidiary Gemma received full notice to proceed on the CPV Basin Ranch Energy Center in Ward County, Texas. This is a 1,350 MW 2 1x1 combined cycle plant using GE 7HA.03 turbines and designed with optional carbon capture capability, with construction starting this fall and completion targeted for 2028 (Key Developments).
• The CPV Basin Ranch project is positioned to deliver reliable, efficient and environmentally responsible power while reinforcing local grid infrastructure, supporting economic development and contributing to cleaner energy goals in the region (Key Developments).
• Management reiterated a focus on pursuing M&A opportunities that are additive or complementary to current capabilities or geographic reach. This will be pursued alongside disciplined risk management, improved project execution and organic growth as part of Argan's long term capital allocation strategy (Key Developments).

Valuation Changes

• Fair Value: Raised significantly to $361 from $295.75, reflecting higher expected earnings power and an expanded valuation range.
• Discount Rate: Edged down slightly from 8.40 percent to approximately 8.40 percent, providing a modest uplift to the discounted cash flow valuation.
• Revenue Growth: Trimmed slightly from about 16.15 percent to roughly 15.79 percent, indicating marginally more conservative top line expectations.
• Net Profit Margin: Reduced slightly from about 11.64 percent to approximately 11.49 percent, suggesting a modestly more cautious view on long term profitability.
• Future P/E: Increased meaningfully from 31.4x to about 39.5x, implying a higher expected earnings multiple despite the marginally lower growth and margin assumptions.