North American Construction Group Ltd.’s NOA, MacKellar Group, secured a five-year contract from an existing client, a major metallurgical coal producer in Queensland, Australia. The contract transitions the existing dry rental fleet to a fully maintained fleet under a renewed agreement.
This marks NOA's second major long-term mining contract in 2024 in Australia, highlighting strong equipment demand in the region and the company's solid client relationships. The five-year contract, expiring on Sep. 30, 2029, adds to NOA's contractual backlog due to minimum-hour commitments. The contract, which includes fully-maintained equipment and related services, is valued at approximately $375 million.
The contract scopes are anticipated to be fully ramped up by mid-2025. To achieve this, NOA will need to establish an on-site maintenance facility and acquire 20 additional units, which will be purchased and constructed by MacKellar. The total growth capital required is estimated to be $50-$55 million, with purchases and construction planned primarily for fourth-quarter 2024.
Contract Wins to Support NOA’s Growth
North American Construction provides equipment maintenance and mining and heavy construction services to the resource development and industrial construction markets in Canada, the United States and Australia. Its range of services includes constructability reviews, budgetary cost estimates, design-build construction, project management, contract mining and equipment maintenance. In October 2023, NOA acquired MacKellar Group for a total expected consideration of $395 million. This strategic move is likely to boost the company’s scope in the future as well.
On March 5, 2024, NOA’s MacKellar Group secured a five-year contract extension with a major metallurgical coal producer in Queensland, Australia. The extension moves the expiry date from June 6, 2025, to June 30, 2030, adding to NOA’s contractual backlog due to minimum-hour commitments. The rental scopes are estimated at $100 million per year, totaling $500 million.
Australian opportunities and demand for heavy equipment are growing. New and expanding operations in Queensland and New South Wales are actively seeking contractor equipment for metallurgical and thermal coal markets. NOA is receiving contract mining and equipment rental opportunities in copper, gold, silver and iron ore.
During second-quarter 2024, the company stated that it expects to secure one or more major contracts outside of oil sands this year. This will help allocate its remaining underutilized fleet in 2025.
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Shares of this heavy equipment and mining contractor declined 20.3% in the past year against the Zacks Building Products - Heavy Construction industry’s 48.3% growth. Although the company has underperformed its industry in the said period, it is likely to benefit from the growing demand for equipment and services in Australia. These factors are expected to drive growth, boost future revenues and strengthen its market position.
The consensus estimate for NOA’s 2024 sales and EPS indicates growth of 22.7% and 53.8%, respectively, from the prior-year reported levels.
Zacks Rank & Key Picks
North American Construction currently carries a Zacks Rank #3 (Hold).
Here are some better-ranked stocks from the Construction sector.
EMCOR Group, Inc. EME currently flaunts a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 36.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for EME’s 2024 earnings per share (EPS) indicates an improvement of 34.9% from the prior-year levels.
Armstrong World Industries, Inc. AWI currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 15.4%, on average.
The consensus estimate for AWI’s 2024 sales and EPS indicates growth of 10.1% and 14.1%, respectively, from the prior-year reported levels.
Advanced Drainage Systems, Inc. WMS currently carries a Zacks Rank #2. WMS delivered a trailing four-quarter earnings surprise of 23.2%, on average.
The Zacks Consensus Estimate for WMS’ fiscal 2025 sales and EPS indicates growth of 4.7% and 12.4%, respectively, from the prior-year reported levels.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Advanced Drainage Systems, Inc. (WMS) : Free Stock Analysis Report
EMCOR Group, Inc. (EME) : Free Stock Analysis Report
Armstrong World Industries, Inc. (AWI) : Free Stock Analysis Report
North American Construction Group Ltd. (NOA) : Free Stock Analysis Report
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