On Monday, BMO Capital Markets maintained its Outperform rating on Stantec Inc . (NYSE:STN:CN) (NYSE: STN), while increasing the company's price target from Cdn$131.00 to Cdn$135.00. The adjustment follows the company's third-quarter results for the year 2024.
The analyst from BMO Capital Markets noted that the recent downward pressure on Stantec (TSX:STN)'s stock is likely due to investors reallocating their investments into other sectors, using Stantec as a source of funds. This trend was identified as a primary short-term risk for the Engineering and Construction (E&C) sector, including Stantec.
Despite the market movements, the firm believes that Stantec's business is performing strongly. The company is seen to have considerable capacity to self-fund mergers and acquisitions, which is a positive sign for its financial health and growth prospects.
The analyst also highlighted Stantec's valuation, considering it attractive for a company that demonstrates good visibility into achieving mid-to-high teens earnings growth. This growth potential contributes to the firm's confidence in maintaining an Outperform rating for Stantec.
BMO Capital Markets' updated price target reflects their outlook on Stantec's ability to navigate the current market environment while capitalizing on its internal financial capabilities and growth trajectory.
In other recent news, Stantec reported record net revenue of CAD1.5 billion in Q3 2024, marking a 16% increase from the same period last year. This growth was driven by robust organic growth and strategic acquisitions, as well as a significant rise in the company's backlog. The firm's adjusted EBITDA reached CAD275 million with an 18% margin, and adjusted EPS increased to CAD1.30. Stantec raised its 2024 net revenue growth forecast to 14.5%-15% and expects adjusted diluted EPS growth between 16%-18%. The company's backlog reached a record CAD7.3 billion, a 9.5% increase since December 2023.
Stantec was also recognized as Canada’s Most Responsible Company for 2025 by Newsweek. In its strategic plan for 2024 to 2026, the company focuses on expansion in the U.S., U.K., and other key markets. Despite potential regulatory changes regarding PFAS, Stantec maintains a positive outlook for Q4 2024 and into 2025, supported by successful integration of recent acquisitions.
InvestingPro Insights
Stantec's strong financial performance, as highlighted by BMO Capital Markets, is further supported by data from InvestingPro. The company's revenue growth of 13.64% over the last twelve months and 15.8% in Q3 2024 aligns with the analyst's positive outlook on Stantec's business performance.
InvestingPro Tips reveal that Stantec has raised its dividend for 13 consecutive years, demonstrating a commitment to shareholder returns that complements its growth strategy. This consistency in dividend payments could be particularly appealing to investors seeking stable income alongside capital appreciation.
The company's impressive gross profit margin of 54.2% underscores its operational efficiency, which may contribute to its capacity for self-funded acquisitions as noted by BMO Capital Markets. Additionally, Stantec's return on assets of 5.35% indicates effective use of its asset base to generate profits.
It's worth noting that InvestingPro lists 12 additional tips for Stantec, offering investors a more comprehensive analysis of the company's financial health and market position. These insights, available through the InvestingPro product, could provide valuable context for understanding Stantec's valuation and growth prospects.
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