Why This Consulting Firm Merits Investors' Attention
Since consulting company Stantec (NYSE: STN) operates behind the scenes, its gains can be overshadowed by the fortunes it helps create for its clients. But if you overlook this company, you might miss out on a great investment.
The broad range of services which Stantec offers is one of the Edmonton, Alberta-based company's major strengths. Its areas of expertise include planning, surveying, designing, engineering, and managing projects involving infrastructure and buildings.
Serving both government and private clients in Canada, the U.S., and internationally, it operates 170 North American locations and four other international offices. Its clientele is as diverse as the company's service offerings, consisting of players in the oil and gas, mining, transportation, construction and property development sectors.
The company's second quarter of 2013 yielded positive organic revenue growth for all of Stantec's regions. Gross revenue for the quarter rose year over year by 19.7% to $566.7 million, from $473.4 million.
In the same period, net income increased 17.5% to $36.2 million, up from $30.8 million. Diluted EPS rose 16.4% to $0.78, from $0.67. These results were substantially ahead of analysts' expectations of $0.62 per share in earnings, on revenues of $411.10 million. This marked the fourth consecutive quarter that Stantec beat earnings predictions.
During the quarter, the company also won a contract as lead design engineer and architect for a $614.8-million design/build project with the U.S. Army Corps of Engineers, New Orleans District, for storm mitigation facilities.
The company's backlog could also drive future earnings. It rose to $1.5 billion at the end of this year's second quarter, from $1.3 billion at the end of the first quarter.
A substantial slice of this backlog comes from Stantec's $44 million contract on the $14 billion Jansen potash mine project of BHP Billiton (NYSE: BHP) in Saskatchewan, which reflects Stantec's leading position in underground mine engineering. Stantec is supplying the design and related services to help BHP solve challenging mining operations, such as freezing the ground to prevent groundwater inflow.
The recent departure of Russian producer Urkali from one of the top two global cartels on potash shouldn't endanger Stantec's contract with BHP. The latter company has indicated that it won't delay the Jansen mine development .
"We think very long term. This is something that's happened short term," BHP CEO Andrew Mackenzie said regarding the cartel breakup's potential effect on the Jansen project.
Eye on mining rebound
As expected, Stantec is in synch with such bullish mining industry sentiments. The company is now on the lookout for big mining-related jobs in the mold of its underground mine feasibility study contract in the Grasberg Block Cave mine of Freeport-McMoRan Copper & Gold in Indonesia. This minerals district reputedly holds one of the world's largest single deposits of copper and gold, reputedly good until 2042 -- which could make it a potent source of future Stantec contracts.
An accident in mid-May closed the mine's operations temporarily, but its open-pit operation resumed in late June. The incident appears to have minimal impact on Freeport- McMoran, which reported $0.49 EPS in the second quarter, exceeding analysts' estimates.
Valued new acquisitions
The glimpses of mining's fundamental strength that BHP and Freeport-McMoran give us are only one indication of Stantec's growth prospects. Notably, the company has also made recent acquisitions that further bolster both its market reach and expertise in building and civil engineering as well as interior design.Together with the company's lucrative mining contracts, these acquisitions augur well for Stantec to continue generating robust cashflow from its operations.
Stantec's one-year forward P/E ratio in the low teens likewise looks eye-catching among investors. Also, the company's 16.4% year-on-year EPS growth and 1.30% annual dividend yield, which rank among the best in the technical services industry, could indeed spotlight Stantec as a promising stock pick.
The article Why This Consulting Firm Merits Investors' Attention originally appeared on Fool.com.Arturo Cuevas has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!
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