Can Data Center Demand Keep Driving Sterling's Margins in 2025?

Company Overview - Sterling Infrastructure, Inc. (STRL) has established a strong position in the data-center construction sector, benefiting from the increasing demand for E-Infrastructure projects [1] - The company is recognized for its ability to manage complex, mission-critical projects and deliver high-quality outcomes, making it a trusted partner for data-center developers [1] Financial Performance - As of the end of the first quarter, STRL's total backlog reached $2.1 billion, with a gross margin of 17.7%, an increase of 100 basis points from 16.7% at the end of 2024 [2] - The E-Infrastructure Solutions segment accounted for $1.2 billion, approximately 57% of the total backlog, indicating a focus on high-margin opportunities [2] - In Q1 2025, revenues from the E-Infrastructure segment rose 18% year over year, with data center-related activity expanding by roughly 60% compared to the previous year [3] - Data-center projects now represent over 65% of the E-Infrastructure segment's backlog, enhancing future revenue visibility [3] - Adjusted operating margins for the E-Infrastructure segment increased by 618 basis points year over year to 23% [3] Market Outlook - The company anticipates continued strong demand for data centers as customers plan multiyear capital deployments and seek partnerships for project support [4] Competitor Landscape - Other industry players such as Jacobs Solutions Inc. and Dycom Industries, Inc. are also positioned to benefit from the growing demand for data-center infrastructure [5] - Jacobs is enhancing its presence in the data-center market with double-digit revenue growth and recent partnerships, including one with NVIDIA [6] - Dycom is expanding its work with hyperscalers, driven by increasing fiber demand linked to data centers and the growth of AI infrastructure [7] Stock Performance and Valuation - STRL's stock has increased by 12.4% over the past month, outperforming the Zacks Engineering - R and D Services industry's rise of 6.8% [8] - The company is currently trading at a price-to-earnings ratio of 23.21X, which is above the industry's average of 20.43X [11] - The Zacks Consensus Estimate for STRL's earnings in 2025 and 2026 indicates year-over-year increases of 38.5% and 11.6%, respectively [13]