Argan(US:AGX) Seeking Alpha·2024-06-12 09:05Core Viewpoint - Argan, Inc. (AGX) is well-positioned to benefit from increasing electricity demand driven by generative AI, electric vehicle (EV) adoption, and the need for enhanced energy infrastructure, leading to a positive growth outlook and a recommendation for a buy rating [3][19]. Company Overview - AGX operates through subsidiaries including Gemma Power Systems, The Roberts Company, Atlantic Projects Company, and Southern Maryland Cable, providing services to the power generation, industrial, and telecommunications markets [3]. - The power industry services segment is the largest, accounting for approximately 70% of total revenue, followed by industrial construction services at 28% and telecommunications infrastructure services at 2% [10]. Demand Drivers - The demand for electricity is expected to rise due to the growth of AI and data centers, EVs, and renewable energy projects, necessitating upgrades to the global energy infrastructure [11]. - Generative AI is projected to increase data center power consumption by 160% by 2030, with data centers expected to account for 3-4% of overall power usage by the end of the decade [12]. - EV sales reached nearly 14 million in 2023, with expectations for continued growth, potentially reaching 17 million in 2024, which will significantly increase power demand [15]. Financial Performance - AGX's revenue was approximately $509.37 million in 2021, decreased to $455.04 million in 2022, and rebounded to $573.33 million in 2023, with notable growth in power industry services (20.3%) and industrial construction services (53.9%) [6][8]. - In Q1 2025, AGX reported a 52.1% year-over-year increase in consolidated revenue to $157.7 million, driven by projects like the Trumbull Energy Center and Midwest Solar and Battery Projects [8]. Profitability Metrics - AGX's gross profit margin contracted from 19% to 14.1% in 2024, primarily due to a $13.6 million loss related to the Kilroot project, impacting net income margin which fell from 7.3% to 5.6% [7]. - Despite the gross margin contraction, EBITDA margin improved from 3.5% to 7.5% in Q1 2025, supported by lower SG&A expenses [8]. Growth Outlook - AGX's forward revenue growth rate is 24.42%, significantly higher than the peers' median of 11.46%, indicating strong growth potential [18]. - The company has a robust project backlog, including the Trumbull Energy Center and a utility-scale solar field in Illinois, which is expected to generate 405 MW of electricity [18]. Market Positioning - AGX's forward P/E ratio is 19.48x, higher than the peers' median of 16.47x, reflecting its strong growth outlook and profitability margins [18]. - The anticipated market revenue for AGX in 2026 is approximately $876 million, with an EPS estimate of $4.94 per share [18].