Stantec is a leading global design and consulting company, ranks third in North America and in the top ten worldwide. The company offers professional services throughout the project life cycle, ranging from planning, design, construction management, commissioning, maintenance, decommissioning and renovation.

It serves a wide range of markets such as civil, educational, industrial, healthcare, mining, energy, transportation, oil and gas, water, etc., and caters to both public and private customers .

From its humble beginnings as a one-person company in 1954, Stantec now has an enormous geographic presence spanning 350 locations on six continents. In terms of sales, the USA is the largest market with a share of more than 50% of total sales, followed by Canada (~ 30%) and other global markets.

The company primarily generates revenues from consulting services under service fee agreements. The company operates in five business areas: infrastructure (28% of sales in 2020), buildings (21%), water (21%), environmental services (15%) and energy and resources (15%).

Stantec is also available as a double-listed stock trading under STN on the NYSE.

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Sales growth and market presence

Stantec is highly diversified in terms of customer type, business area and region, which reduces dependence on a specific industry or region. His local strength, expertise and relationships have enabled him to more effectively serve his customers’ needs over the past 65 years. The company has in-depth expertise in buildings, energy and infrastructure and serves the design phase of projects in these sectors that offer high margin opportunities.

The company focuses on organic growth, strategic acquisitions and the provision of innovative service offerings and can look back on many years of experience in building successful business platforms. Stantec has successfully completed more than 130 acquisitions since 1994. The acquisition of GTA Consultants by Stantec in the first quarter and the agreement to acquire Engenium mean an increase in the Australian presence of 20%.

Stantec is well positioned to leverage its leadership position and capitalize on growth opportunities in industrial sectors in Canada and the United States. The growing global demand for environmental services and infrastructure is a strong tailwind for Stantec. A customer-oriented framework, timely project execution and efficient processes have all led to sticky customer relationships. The company made significant project wins in the US, Canada and worldwide in the first quarter.

The goal is to increase sales by 10% CAGR by 2023. The company has grown its sales 14% + CAGR over the past decade. It offers a good mix of local expertise and global reach for consulting services and project delivery, which makes it popular with clients. An integrated business model also makes it a clear industry winner.

Stantec ended the quarter with an order backlog of $ 4.6 billion, up 5.8% since last year-end. The company’s quarterly revenue declined 8% year-over-year, as expected.

The pandemic has impacted Stantec’s building business and large midstream projects. However, the water business did well. The most recent acquisitions contributed to a 2.2% increase in sales. Stantec reiterated its forecast for 2021 with organic net sales growth in the low to mid single digits.

Dividends

Stantec is a Canadian dividend aristocrat and has increased its dividends to over 8% CAGR over the past five years. It has an annual return of 1.2% and a payout ratio of 40%. Stantec returned $ 148 million to shareholders through dividends and share buybacks in 2020, and announced a 6.5% increase in dividend in 2021.

The company paid ~ $ 17 million in dividends last quarter but did not buy back any shares. Stantec aims for EPS growth of more than 11% CAGR by 2023.

The company has good experience in identifying and acquiring companies that complement its business model. Strategic acquisitions have expanded the company’s offering, geographic presence and customer base. Stantec estimates that over the next decade there will be an additional $ 2 trillion in new engineering and design opportunities in areas such as coastal resilience, ecosystem restoration, smart cities and urban spaces, and energy transition.

The company has a well-defined plan for growth in North America, Australia and New Zealand, as well as diversification into the European market. It is also growing in various industries and focusing on non-cyclical industries for greater earnings stability.

Stantec’s three-year plan aims to maximize long-term value. Adjusted diluted EPS 2021 is expected to grow in the low to mid single digits. With Stantec’s position as one of the world’s ten leading design companies, Stantec has a good chance of working with the world’s leading customers on innovative and globally changing projects.

Historical earnings from Stantec (STN)
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competition

Stantec competes with companies like SNC-Lavalin, the top-selling Canadian engineering and construction company. It also competes with Bechtel, AECOM, HOCHTIEF AG, Aedas, Nikken Sekkei, DP Architects, Fluor, PCL Constructors Inc., HDR Architecture, Jacobs, Foster & Partners Limited, HOK, IBI Group Inc., Perkins & Will, WorleyParsons, Perkins Eastman, Gensler, worldwide.

The company’s integrated platform offers an operational advantage over its competitors. One of the key differentiators for Stantec is the fact that the company doesn’t rely on a few large projects for its revenue. It is open to working with large and small contractors at different rates.

Bottom line

The company is well positioned to capitalize on new opportunities emerging from climate change, urbanization, geopolitics and technology. Due to global developments and increasing infrastructure spending, the company should continue to grow.

A strong balance sheet, a good order backlog and a good position in Stantec’s acquisition pipeline ensure continuous growth in 2021.

STN versus TSX versus SP500 2021
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Stantec (STN) historical PE
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