Aecon Group Inc. $ARE
Aecon is one of Canada’s largest infrastructure and construction companies. It builds and maintains major projects in:
* Nuclear power
* Utilities and power transmission
* Roads and highways
* Transit (LRT, subways)
* Bridges
* Pipelines
* Industrial facilities
* Mining infrastructure
Its customers include federal and provincial governments, utilities, and large industrial companies.
I personally love seeing companies with both public and private sector exposure.
Bull Case:
Massive infrastructure spending
Canada is expected to invest heavily for years in:
* Nuclear power
* Electricity transmission
* Renewable energy
* Public transit
* Water infrastructure
Aecon is well positioned to benefit.
Record backlog
A backlog of nearly $11 billion provides several years of contracted work, reducing uncertainty.
Bear Case:
Thin margins
Construction is a low-margin business. Even small cost overruns can significantly reduce profits.
Fixed-price contract risk
Unexpected inflation, labor shortages, or material cost increases can make contracts much less profitable.
Cyclical business
If governments delay infrastructure spending or private-sector investment slows, new project awards may decline.
Honestly with such a huge backlog, the pros outweigh the cons with this one. The biggest issue is valuation.
What are your thoughts?
