Is Aecon Group a buy?

Newhaven Asset Management portfolio manager Rebecca Teltscher said Aecon Group is well-positioned for long-term growth as it moves past cost overruns tied to pandemic-era fixed-price contracts and builds on a record project backlog.

Speaking on BNN Bloomberg’s Market Call on Oct. 6, Teltscher said the stock has been more volatile than usual in recent years because of legacy contracts signed around the pandemic, including the Eglinton LRT, the Gordie Howe Bridge and Coastal GasLink projects. These projects were hit by supply disruptions, delays and cost overruns during the pandemic.

“We’re really at the very, very tail end of that,” she said.

Coastal GasLink is now settled, while the LRT and Gordie Howe projects are expected to wrap up by late 2024 or early 2025. Less than 1% of Aecon’s current backlog is tied to these contracts, though the company has allowed for about $150-million in additional potential losses. Teltscher said there is a chance they may exceed that, but she expects the overhang from these projects to fade as they are completed.

She said that Aecon’s backlog is at a record high of more than $10-billion, with $1-billion added in the most recent quarter alone. Much of that growth is coming from the utilities segment, including major nuclear refurbishment projects in Ontario. Teltscher said potential nuclear contracts outside Ontario could provide additional upside in the coming years, alongside increased public-sector transportation investment.

Aecon has also completed two smaller U.S. acquisitions in the industrial space, sourced through existing Canadian clients with U.S. operations in sectors such as oil and mining. Teltscher said these acquisitions will help diversify Aecon’s business beyond Canada.

“I do think that the stock is poised to grow higher,” she said, adding that Aecon currently offers a 3% dividend yield, down from 6% when her firm first invested, but she expects further dividend growth ahead.

Aecon shares have gained about 14% over the past year and 77% over the past five years. Of the analysts covering the stock, eight rate it “Buy,” three “Hold,” and none “Sell,” with a consensus target price of $24.82.

-30-