4 Infrastructure-Focused Heavy Construction Stocks Despite Headwinds

Industry Overview - The Zacks Building Products - Heavy Construction industry is facing tariff-related uncertainty, cost pressures, inflation, and labor constraints, which can delay projects and compress margins [1][4] - The industry consists of companies involved in mechanical and electrical construction, industrial and energy infrastructure, and building services, focusing on transportation projects like highways, bridges, and ports [3] Long-term Outlook - A generational U.S. infrastructure push is creating a multi-year project pipeline, driven by transportation upgrades, broadband expansion, and clean-energy initiatives [2] - The rapid expansion of data centers is increasing demand for advanced civil and electrical infrastructure, benefiting established players like MasTec, Dycom Industries, Tutor Perini, and Orion Group [2] Macroeconomic Challenges - The industry is experiencing headwinds from macroeconomic challenges, including a tight labor market and rising raw material costs, which are exacerbated by economic and policy uncertainty [4] - Companies are sensitive to changes in customer capital expenditure budgets and regulatory frameworks, with concerns about evolving tariff and trade policies affecting materials pricing [4] Data Center and Infrastructure Growth - The AI/data-center buildout is a significant driver for the industry, enhancing backlog visibility and margin performance through long-term, high-value projects [5] - The U.S. administration's infrastructure plan aims to create modern, sustainable infrastructure, which is expected to have significant implications for the economy and the construction industry over the next five years [5] Inorganic Growth and Renewable Energy - Companies are increasingly using acquisitions to solidify product portfolios and leverage new business opportunities, particularly in renewable energy projects [6] - The push for decarbonization and clean energy solutions is expected to benefit companies involved in infrastructure for carbon-free energy [7] Industry Performance and Valuation - The Zacks Building Products - Heavy Construction industry currently ranks 188, placing it in the bottom 23% of over 250 Zacks industries, indicating bleak near-term prospects [8][10] - Despite a cloudy outlook, the industry has outperformed the broader Zacks Construction sector and the S&P 500, with a collective gain of 39% over the past year compared to the sector's 2.6% rise [12] Current Valuation - The industry is trading at a forward 12-month price-to-earnings ratio of 23.48, higher than the S&P 500's 22.81 and the sector's 20.61 [15] - Over the past five years, the industry's P/E ratio has ranged from a low of 11.39X to a high of 23.48X, with a median of 16.71X [16] Notable Companies - Tutor Perini: A global construction services provider with a robust pipeline of large infrastructure projects, expected to grow earnings by 17.7% in 2026 [18][19] - Dycom Industries: A specialty contracting firm benefiting from fiber-to-the-home deployments and federal broadband initiatives, with earnings estimates increasing to $10.71 per share for fiscal 2026 [24][25] - MasTec: An infrastructure construction company with strong growth prospects driven by communications and clean energy demand, expecting earnings growth of 28.3% in 2026 [26][28] - Orion Group: A specialty construction firm with solid growth prospects in marine and coastal infrastructure, expecting earnings growth of 44.7% in 2026 [30][31]