Sterling Infrastructure: The Picks And Shovels To The Future Of AI

Company Overview - Sterling Infrastructure (NASDAQ:STRL) is a specialized construction and engineering company operating in three verticals: e-infrastructure, transportation, and building solutions [2] - The e-infrastructure segment is the largest and fastest growing, generating 48% of total sales, while the transportation segment accounts for 32% of sales with lower operating margins of 6.6% [16] - The building solutions segment, although the smallest at 20% of revenues, is growing with good operating margins of 11.4% [3] Financial Performance - Over the last twenty years, the company has achieved compound annual growth rates (CAGRs) in revenue and EBITDA of 13.8% and 15.4%, respectively [6] - In the last five years, revenue and EBITDA have compounded at rates of 13.7% and 33.9%, respectively [6] - The company's operating cash flow has nearly doubled every two years, providing flexibility for growth investments [7] Growth Opportunities - The global smart infrastructure market is projected to grow at a 23.1% CAGR, reaching nearly $1 trillion by 2032, driven by increased demand for e-infrastructure [21] - The company's backlog of projects totaled $961 million, a 32% increase compared to Q1'23, with data centers contributing significantly to this growth [21] - Management is guiding for FY'24 revenue of $2.125 to $2.215 billion and EBITDA of $285 to $300 million, indicating expectations for continued margin expansion [22] Capital Allocation - Sterling Infrastructure focuses on organic growth initiatives, M&A, and share buybacks, with a preference for margin-accretive deals [23] - The company has a strong balance sheet with cash exceeding total debt, allowing for potential leverage up to 2.5x if opportunities arise [23] Valuation - The company's shares have more than doubled over the past year, with a current EV/EBITDA multiple of 11.2x, which is significantly higher than the 6.0x multiple before 2023 [24][25] - Despite the recent rise in share price, the company is seen as having a favorable valuation given its growth prospects and business mix shift towards higher-margin e-infrastructure [13][25]