Across the board, there was nothing but green in the markets Tuesday. The Labor Department reported that inflation was unchanged from September to October. Further, consumer prices last month rose 3.2%, 50 basis points lower than a year ago, and the smallest increase since June.
As I write this with a few minutes left in the day’s trading, the S&P 500 is up 1.90%, the Dow 1.36%, the Nasdaq has gained nearly 2.4%, and the Russell 2000, which represents smaller stocks, is up a whopping 5.3%.
I’ve scanned the stocks hitting 52-week highs. There are 104 on the NYSE and another 92 on the Nasdaq, the highest number in many weeks.
One smaller stock up significantly on Tuesday is Alabama-based Construction Partners (ROAD). The company builds highways, roads, bridges, airports, and other infrastructure in six southeastern states.
Construction Partners’ stock is up nearly 7% on the day, hitting a 52-week high for the 23rd time in the past year. With today’s advance, ROAD stock is up 64% in 2023 and 338% over the past year, 20x the Russell 2000.
Before you toss this stock aside, here’s why you might want to take a closer look.
The Latest Quarter Popped
I'll be honest; I only know a little about Construction Partners. However, as I looked at Barchart.com’s Key Statistics data, something jumped out at me.
Its annual sales for the latest fiscal year were $1.30 billion, with a net income of $21.4 million. In the latest quarter, its sales were $421.9 million, with $21.9 million in net income. So, its net margin in 2022 was 1.6%. In the latest quarter, it was 5.2%, 360 basis points higher.
My wife runs a construction company, and I know margins can be grocery-store tight, so color me intrigued about the increase. It may be a seasonal or timing thing. However, it’s also possible it’s doing some new things to be more productive and profitable.
The company reported its Q3 2023 results in August. As I mentioned, its revenue was $421.9 million, the highest quarterly revenue in the company’s history, 14% higher than a year ago. Its gross profit in the quarter was $64.1 million, 45% higher year-over-year, and its net income was $21.7 million -- just a $200,000 difference from key stats -- 78% higher YOY.
Those are all excellent for this type of business.
“Our team achieved margins 350 basis points higher than a year ago, leading to significantly stronger net income, cash flow, and Adjusted EBITDA. Overall, our business is now experiencing operational performance typical for CPI, as we pursue healthy sources of recurring revenue and operate in a more stable cost environment,” stated CEO Fred J. (Jule) Smith, III.
“All of these factors continue to support our bullish outlook for near- and long-term profitable growth.”
Raised Its Guidance
As a result of the quarter, it raised its guidance for 2023 net income, adjusted EBITDA, and narrowed its revenue range for the year.
As far as I can tell, the company had a hiccup or two in 2022. Those troubles appear to be in the rearview mirror.
Two months after announcing Q3 2023 results, Construction Partners announced its preliminary Q4 2023 and full-year results. Revenue should be $1.60 billion in 2024 at the midpoint of its guidance, 23% higher than in 2022, net income of $45.9 million, 115% higher YOY, and adjusted EBITDA of $170.0 million, 53% higher than a year ago.
Its adjusted EBITDA margin should be at least 240 basis points higher at 10.9%. Its net margin should be 2.9%, 230 basis points higher than in 2022.
That’s all good.
ROAD reports its Q4 results on Nov. 29. I’ll be watching for its guidance for 2024. All the comments from Smith suggest they’ll be very positive.
Meets and Exceeds 5-year Targets From 2018 IPO
Construction Partners went public in May 2018. At the time, it set three goals: To generate $1 billion in annual revenue, grow revenues in the single to low double digits, and grow its market share and geographic footprint.
It hit $1 billion in revenue in 2022 ($1.30 billion), grew revenues by 17.6% annually over the past five years, made 19 acquisitions over the past five years, and grew the number of local markets it’s in by 122%.
By 2027, it wants to generate between $2.7 billion and $3.2 billion in revenue with an EBITDA margin of 13-14%.
With infrastructure spending coming in 2024 and beyond, its backlog of $1.59 billion at the end of the third quarter is likely to grow.
Seven analysts cover ROAD stock. Of those, six rate it Overweight or an outright Buy, with a target price of $44. I expect several of these analysts to increase their target price to the low $50s at the end of the month.
At the very least, I'd suggest putting ROAD on your watchlist. It’s got an excellent future.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
