Sterling Infrastructure(STRL) ZACKS·2025-02-21 16:46Core Viewpoint - Sterling Infrastructure, Inc. (STRL) is positioned for strong growth driven by its focus on e-infrastructure and transportation markets, despite recent stock performance challenges [7][21]. Financial Performance - STRL reported Q3 2024 EPS of 593.7 million, slightly missing expectations by 1% [1]. - The company's backlog reached 2.37 billion, indicating strong future growth potential [1]. Segment Performance - E-Infrastructure Solutions accounted for 45% of Q3 2024 revenues, with data center projects making up over 50% of its backlog [8]. - The Transportation Solutions segment represented 38% of total revenues, benefiting from robust state and local funding and the Infrastructure Bill's allocation of $643 billion [9]. - The Building Solutions segment, which accounted for 17% of revenues, faces challenges in the residential construction market due to affordability concerns and high interest rates [10]. Market Position and Strategy - STRL has consistently surpassed earnings expectations, with an average surprise of 21.5% over the last four quarters [2][3]. - The company is strategically focused on high-margin projects and has established itself as a major player in the e-infrastructure market [7]. Valuation and Stock Performance - STRL stock has underperformed, losing 20% since the AI-related market selloff on January 27, 2025, and 39.7% from its 52-week high [12][15]. - The stock is currently trading at a forward P/E ratio of 18.98, above the industry average of 18.33 and its three-year median of 15.24, indicating a stretched valuation [15][16]. Future Outlook - The company is expected to benefit from increased capital expenditures in AI-related infrastructure, with major clients like Amazon and Meta planning significant investments [21]. - Despite the promising outlook, the heavy reliance on big tech contracts poses risks if there is a slowdown in AI-related spending [22].