Why Stantec Stock Soared on Friday
Key Points
Stantec beat on sales and earnings this morning.
Shares of the Canadian engineering firm appear close to fair value on strong growth forecasts.
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Engineering and environmental consulting company Stantec (NYSE:STN) soared 13.5% through 2:20 p.m. ET Friday after crushing analyst forecasts for sales and earnings this morning.
Wall Street had expected the Canadian firm to earn only Cdn$1.27 per share on Cdn$1.3 billion in quarterly revenue, but Stantec actually earned an adjusted profit of Cdn$1.89 per share on Cdn$1.9 billion in revenue.
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Stantec Q3 earnings
What does that work out to in "American money?" Stantec earned $1.32 per share (adjusted) on $1.3 billion in revenue, growing its sales 9% year over year and its adjusted earnings per share 24%. Actual GAAP profit was lower than that, but at $1.12 per share, it was still up 21%.
What's more, Stantec says its contracted backlog -- an indicator of future revenues -- grew nearly 12% year over year, faster than sales growth, implying sales growth will probably accelerate going forward.
What's next for Stantec stock
With Q3 in the books, Stantec also revised its guidance through the end of this year, narrowing its expected range of revenue growth to 9% to 11%, and raising its forecast for adjusted earnings growth -- to 17% to 19%. Incidentally, that's about how fast analysts, polled by S&P Global Market Intelligence, believe Stantec can continue to grow over the next five years.
Assuming they're right -- and that Stantec is right -- I'd say the stock is close to fairly priced at 23 times earnings, an 18% long-term growth rate, and a 0.9% dividend yield. Maybe a bit overpriced after today's run-up, but not egregiously so.
Investors should be pretty safe buying into this rally.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Stantec. The Motley Fool has a disclosure policy.
