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On Wednesday, DA Davidson maintained a Buy rating on Sterling Construction (NASDAQ:STRL) and increased the price target to $205.00 from $185.00, citing a solid start to the first quarter, strong earnings growth, operational performance, and robust bookings. According to InvestingPro data, the stock has gained over 15% in the past week, with analyst targets ranging from $185 to $225, reflecting strong market confidence. Three analysts have recently revised their earnings estimates upward for the upcoming period. Despite observing some weakness in the Building Solutions segment, the firm believes that Sterling Construction’s sustained earnings and cash flow growth, coupled with strategic reallocations, will continue to enhance shareholder value.
The analyst noted that methodical mergers and acquisitions (M&A) have been instrumental in Sterling Construction’s success, leading to the decision to raise the price target. Data centers (DCs) are a growing part of the company’s bookings and revenue within the E-Infrastructure segment, providing visibility for 2025 and beyond. Additionally, warehousing and distribution activities are gaining momentum, which should allow Sterling Construction to effectively leverage resources across various projects.
The company’s E-Infrastructure segment has demonstrated the ability to adapt to changes in demand, with data centers continuing to show no signs of a slowdown. In the Building Solutions segment, Sterling Construction is reportedly strengthening its position through advantageous M&A, such as the acquisition of Drake at approximately four times EBITDA, which is expected to enhance the segment’s earnings power when demand rebounds.
DA Davidson anticipates further M&A activity, potentially within the E-Infrastructure segment, as part of Sterling Construction’s strategy for this year. The firm compares this approach to the company’s diversification efforts in 2017, which were followed by significant transactions. The analyst highlighted Sterling Construction’s impressive trailing twelve months (TTM) return on equity (ROE) of 37%, TTM free cash flow (FCF) conversion of 172%, and sector-leading EBITDA margins.
In light of the continued momentum in key profit-driving business groups, particularly E-Infrastructure, DA Davidson has increased its estimates for 2025/2026. The new price target of $205 reflects 14 times the 2025 and 13 times the 2026 EBITDA estimates, as well as 15 times the 2025 and 2026 FCF estimates. The analyst concludes that, even with these projections, there is still potential for upside to forecasts.
In other recent news, Sterling Construction Company Inc. reported impressive financial results for the first quarter of 2025, surpassing analyst expectations. The company achieved an adjusted earnings per share (EPS) of $1.63, significantly higher than the forecasted $1.00, and reported a revenue of $430.9 million, exceeding the anticipated $411.13 million. This positive performance is attributed to robust growth in Sterling’s e-infrastructure solutions and mission-critical project management. Additionally, the company announced a significant backlog of $2.1 billion, indicating strong future demand. Sterling has also been active in mergers and acquisitions, completing the purchase of Drake Concrete to enhance its presence in the Dallas-Fort Worth area. Analyst firms have noted Sterling’s strategic focus on high-margin projects and its expansion in the data center market. The company’s outlook for the remainder of 2025 is optimistic, with projected full-year revenue between $2.050 billion and $2.150 billion and a diluted EPS of $7.15 to $7.65. Sterling’s strategic direction and strong financial results reflect investor confidence in its continued growth trajectory.
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