Sunbelt Urbanization And Renewables Will Fuel Infrastructure Demand

Key Takeaways

• Outperformance in growth and margins driven by strong Utilities segment, with early visibility into long-term projects supporting sustained earnings expansion.
  
• Operational agility and efficient capital deployment, alongside robust cash flows and buybacks, enhance shareholder value and mitigate sector volatility.
  
• Heavy dependence on fossil fuel projects, slow tech adoption, and rising competition threaten revenue stability, margin growth, and long-term competitiveness in a shifting market.

Catalysts

Provides infrastructure services primarily in the United States and Canada.

• Analyst consensus sees backlog as robust, but current revenue growth and margin acceleration in the Utilities segment are ahead of even management's internal projections, signaling that Primoris is set to outperform current expectations for both top-line growth and operating margins as early as this year.
  
• While consensus points to multi-year infrastructure demand, analysts may be underestimating Primoris' direct visibility into 2026 and 2027 projects-with 40 to 50 percent of 2026 already booked and early 2027 work in negotiation, setting the stage for above-trend revenue visibility and long-term earnings growth.
  
• The accelerating demand for large-scale data centers, electrification, and grid modernization across key Sunbelt and Southern U.S. states is directly fueling a pipeline of over $1 billion in natural gas and power generation projects, materially expanding Primoris' addressable market and further embedding multi-year revenue and margin expansion opportunities.
  
• Primoris' unique operational agility, demonstrated by its ability to seamlessly redeploy workforce and equipment between end markets (like pipeline to renewables/data centers), positions it to maximize resource utilization and sustain high returns on capital, supporting consistent EBITDA growth regardless of short-term sector fluctuations.
  
• The recently authorized $150 million share repurchase program-paired with record cash flows, declining leverage, and stable SG&A as a percentage of revenue-could drive significant EPS accretion and deliver upside to shareholder returns, particularly if the market continues to undervalue Primoris' cash-generative business model.

Primoris Services Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Primoris Services compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Primoris Services's revenue will grow by 7.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.1% today to 4.1% in 3 years time.
• The bullish analysts expect earnings to reach $338.1 million (and earnings per share of $5.76) by about July 2028, up from $206.2 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 22.6x on those 2028 earnings, down from 22.8x today. This future PE is lower than the current PE for the US Construction industry at 33.6x.
• Analysts expect the number of shares outstanding to grow by 0.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.12%, as per the Simply Wall St company report.

Primoris Services Future Earnings Per Share Growth

Risks

• The company's heavy exposure to natural gas and large-scale fossil fuel infrastructure leaves it vulnerable to long-term shifts toward decarbonization, rising environmental regulations, and policy changes, potentially resulting in declining revenues as project opportunities shrink.
  
• Primoris operates in the traditionally manual and service-heavy construction sector, and while there is mention of increased efficiency, there is little evidence of major investments in automation or digitalization-if the company lags in adopting technology, persistent labor shortages may squeeze net margins and long-term earnings.
  
• Backlog growth in renewables and high-growth infrastructure areas remains somewhat uncertain, with management noting that industrial revenue declined and renewables project timing is influenced by changing regulatory and tariff conditions; failure to win a larger share of green infrastructure projects may mean revenues trail more technology-driven or green-focused competitors over time.
  
• The construction industry's increasing fragmentation and commoditization, combined with the rise of lower-cost, tech-enabled competitors, may erode Primoris's pricing power, leading to downward pressure on revenues and gross margins over time.
  
• Ongoing uncertainty in project timing due to customer caution amid economic and regulatory unpredictability, as repeatedly referenced by management, creates long-term risk of revenue volatility and working capital pressures, hindering consistent earnings growth.

Valuation

• The assumed bullish price target for Primoris Services is $110.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Primoris Services'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 $110.0, and the most bearish reporting a price target of just $67.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $8.2 billion, earnings will come to $338.1 million, and it would be trading on a PE ratio of 22.6x, assuming you use a discount rate of 8.1%.
• Given the current share price of $86.94, the bullish analyst price target of $110.0 is 21.0% 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.