This consulting firm is growing revenues at a double-digit pace, in spite of the energy slowdown.
Stantec Inc. (STN)
from The Internet Wealth Builder
Stantec Inc. (STN) reported first-quarter earnings on May 13. Revenues per share were up 23% while earnings per share were up 13%. After adding back amortization of intangibles, I calculate that adjusted earnings per share were up 20%.
The company generates 43% of revenues from the U.S., 53% from Canada, and 4% from international clients. For many years, Stantec has very successfully pursued a business model of growth by acquisition (plus organic growth). Stantec recently acquired an engineering firm in Quebec that increases its total employee count (and presumably revenues) by 10%.
Stantec’s adjusted earnings per share growth in the past four quarters, starting with the most recent (first quarter, 2015) was 20%, 8%, 5%, and 18%.
Based on my analysis price of C$35.26, the P/E ratio is 18.4, the price to book ratio is 2.9, and the dividend yield is 1.2%. The ROE is 17.2%.
The long-term outlook seems good as the company continues to target increasing revenues by 15% annually by continuing its growth-by-acquisition (and organic growth) approach. The company will suffer somewhat due to the oil and gas industry slowdown, although this could be offset by increased growth in other areas. The recent earnings trend is very strong.
After reaching a high of $38.14 last September, Stantec’s stock price had fallen as low as $28.78 in Toronto. This was no doubt due to fears regarding the impact on its business of lower oil prices. I think this fear was overblown given that about 43% of revenues come from the U.S. and that it has offices across Canada, not just in Alberta. Also, its practice areas include many segments not related to energy. With the strong first-quarter earnings, the stock price has now risen to $34.72.
Stantec has a long history of being an exceptionally well-managed Canadian company that has aggressively grown by acquisition. There is little reason to think that it cannot continue to do so. The stock is reasonably priced.
Buy for medium and long-term capital appreciation.
Gordon Pape, The Internet Wealth Builder, www.buildingwealth.ca, 1-888-287-8229, May 23, 2015