Data Center And Grid Hardening Demand Will Support Long-Term Construction Upside

Catalysts

About Everus Construction Group

Everus Construction Group provides specialized electrical, mechanical and transmission and distribution construction services for complex, large scale infrastructure and commercial projects.

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

• Escalating power infrastructure needs tied to data centers, electric vehicles, industrial reshoring and undergrounding are supporting sustained T&D backlog growth and higher revenue visibility, reinforcing multi year revenue expansion.
• Surging demand for technically complex data centers, where Everus is a preferred operator in multiple U.S. regions, is increasing the mix of higher value projects. This is supporting continued double digit segment growth and structurally stronger EBITDA margins.
• Ongoing energy transition investments and utility commitments to grid hardening and substation upgrades are expanding Everus addressable market in renewables and T&D, contributing to an improving project pipeline and more resilient earnings across cycles.
• Strategic geographic expansion into high growth industrial and semiconductor hubs, supported by a scalable prefab platform and added equipment, enhances execution capacity and capital productivity. This is positioning the company to compound revenue while protecting net margins.
• Disciplined project selection, a repeatable execution playbook and deep customer relationships in large and mega projects increase the probability of recurring execution upside. This is helping keep EBITDA margins and earnings power above what recent headline multiples imply.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Everus Construction Group's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.2% today to 5.1% in 3 years time.
• Analysts expect earnings to reach $220.5 million (and earnings per share of $4.29) by about December 2028, up from $181.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 31.3x on those 2028 earnings, up from 23.7x today. This future PE is lower than the current PE for the US Construction industry at 31.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.63%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The current surge in data center construction could normalize if AI and cloud spending cycles slow or customers delay large scale builds. This would reduce demand in Everus largest and highest margin commercial submarket and pressure revenue growth and EBITDA margins over time.
• Execution upside and project pull forwards that have recently boosted results are inherently difficult to repeat every year. A reversion toward more typical project outcomes and timing could lead to lower than expected earnings growth and a compression in EBITDA margins.
• Everus long term strategy depends on attracting and retaining scarce skilled labor in a tight construction market. Any sustained wage inflation or labor shortages could erode project profitability and weigh on net margins and earnings.
• Backlog has been relatively flat despite very strong revenue growth and is described as lumpy. If order intake softens or timing turns less favorable, the multiyear revenue visibility supporting the bullish view on the share price could diminish, leading to slower revenue growth and weaker earnings momentum.
• The company is preparing to deploy capital into M&A at a time of elevated industry optimism. Overpaying for acquisitions or integrating businesses that do not deliver expected synergies could dilute returns on invested capital and drag on EBITDA and net income.

Valuation

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

• The analysts have a consensus price target of $105.67 for Everus Construction Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $4.3 billion, earnings will come to $220.5 million, and it would be trading on a PE ratio of 31.3x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $84.11, the analyst price target of $105.67 is 20.4% 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.