Stantec Upgraded to Buy - Analyst Blog

On May 17, Zacks Investment Research upgraded North American design firm Stantec Inc. STN to a Zacks Rank #2 (Buy) from a Zacks Rank #3 (Hold), encouraged by its strong first-quarter 2014 results.

Why the Upgrade?

Stantec reported first-quarter 2014 results on May 15. Earnings per share came in at 71 cents, well surpassing the Zacks Consensus Estimate of 65 cents. The quarterly earnings also exceeded the year-ago tally by 16.4%.

Earnings were primarily driven by a top-line growth of 12.8% and increased activity in the company's Water, Environmental Services and Transportation segments. Strong momentum in these sectors enabled the company to win several lucrative projects, which benefited results.

Stantec's acquisition of Williamsburg Environmental Group, Inc. and Cultural Resources, Inc. in the first quarter has strengthened its geographic presence and quality of services in its Environmental Services segment. Further, Stantec added considerable strength to its oil and gas and industrial service verticals in the U.S. by acquiring Processes Unlimited International, Inc. in Mar 2014.

Of late, Stantec has witnessed a positive movement in estimates on the back of strong first-quarter 2014 results. The Zacks Consensus Estimate for 2014 has increased by a penny to $3.21 with higher estimate revision over the last week.

The long-term expected earnings growth rate for this stock is currently pegged at 18%.    

Looking ahead, Stantec's acquisition of Utah-based JBR Environmental Consultants, Inc. is set to strengthen its environmental service capabilities across the western U.S.

In keeping with its strategy of inorganic growth, Stantec also signed letters of intent to buy SHW Group and USKH Inc. Texas-based SHW Group is expected to fortify Stantec's present expertise in education and help it in its pursuit of top-tier position in the sector. The Alaskan firm USKH will likely complement Stantec's offerings in Canada and enable it to expand its footprint in North America. These acquisitions are expected to bolster the company's earnings in the coming quarters and help it go from strength to strength.

Other Stocks to Consider

Other stocks worth considering in the Consulting industry include CoreLogic, Inc. CLGX, The Hackett Group, Inc. HCKT and Huron Consulting Group Inc. HURN, all of which carry a Zacks Rank #2.