Baird Projects 'Solid Compounding Returns' From Newly Public Construction Partners

Construction Partners Inc ROAD’s consistent and steady stream of business is a recipe for profitability, according to Baird. 

The Analyst

Baird’s Andrew Wittmann on May 29 initiated coverage of Construction Partners with an Outperform rating and $15 price target.

The Thesis

Construction Partners has exposure to consistent and predictable maintenance-related transportation budgets from state and local governments, Wittmann said in a note. 

“We see a steady business with generally favorable secular tailwinds and mostly recurring revenues that are capable of generating solid compounding returns over time,” the analyst said. 

The company’s focus on the southeastern U.S. has given it a “leading position” in the region and  predictable returns, he said. 

Construction Partners targets markets with lighter competition and is better capitalized than peers, many of which are local- or family-owned companies, giving it an advantage in winning municipal contracts.

Additionally, 60 percent of ROAD’s historical growth has been sourced from M&A activity — the company has made 16 acquisitions since 2001 — and further consolidation will enhance the company’s growth profile, Wittmann said. 

“An identifiable pipeline of relationship-sourced acquisition opportunities is underpinned by a management team with nearly 40 years of local market experience."

Price Action

Shares of Construction Partners are up about 15 percent since debuting at $13 on May 4.

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