Aecon Group Inc (ARE.TO)

ARE provides construction and infrastructure development services to private and public sector. Nuclear power certainly does seem like it is a growing part of the business, now at 19% of construction revenues over the last twelve months. Recent second quarter financials were not good, however, the stock jumped as ARE announced a 5% buyback and numerous analysts upgraded their ratings on the expectations that the "worst is likely behind." ARE does have a large backlog at $6.19 billion, and its balance sheet is net cash positive. It is still quite cheap at 15x forward earnings despite being up 89% over the last year and paying a 3.7% yield. If revenue and earnings growth begin to recover in the second half of 2024, the stock could be interesting at this valuation and yield. 
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Global infrastructure building. Past projects haven't necessarily had the best margins. Right-sized all of that. Going to focus on increasing margins. Growing organically and by acquisition. Dividend has about an 8% annual compound growth rate over the last 10 years. Yield is 3.7%.

Trading at half the multiple than historically. Huge backlog with infrastructure projects, so it will continue to grow by picking up projects and by making acquisitions.

November-March: fantastic. Leveled off in recent weeks, as has the sector. Now consolidating, normal. Engineering stocks have picked up recently, but hasn't yet carried through to this name.

Excellent business that will continue to hold. Recent cost over runs not a major concern. Backlog is full with new projects. Have sold off low margin business units. Stock continues to perform. Recent Nuclear contracts being signed. 

Engineering and construction are core businesses, and the construction part is what stops him. Contracts are at the mercy of cost overruns. He owns WSP instead, pure-play consulting and engineering.

Lots of good things. Oaktree partnership to develop US utilities business. Exposure to nuclear. All the pain will lead to better contracting. Real line of sight to doing well. Infrastructure need and spending will benefit them.

Plagued with cost overruns, so paying penalties impacts profitability. WSP is her choice in the sector.

Does not own shares. Scores 10/10 fundamentally. Has participated in upside rally since October. Strong business model which will benefit from infrastructure spending. Safe dividend yield around 6%. Good long term stock. Would recommend holding. 

Plagued with cost overruns on fixed-price contracts. She's not tempted. Sell, take the loss, and move elsewhere in the engineering space. She owns WSP, purely engineering design and services, no construction exposure.

Problems in fixed-price legacy projects, including cost overruns that are dramatically affecting profitability. This type of business inflexibility is not positive.

Last August, they had some writedowns based on fixed-price contracts in various places. The shares came off. They sold their stake in the Bermuda Airport at a great price, and sold a road-building division. Also good is that they may build a full-scale nuclear reactor in Ontario; they have nuclear expertise. Pays a 6% dividend. A quality company with little risk.

Finally some good news for them--sold 49.9% stake in the Bermuda airport (finally), and they just sold their Ontario road construction business. Are in much stronger financial position. Four legacy contracts at a fixed price will run out end-2023/early-2024. After that will be strong margin expansion. Pays around a 6% dividend and trades at a good PE vs. peers.

They had fixed-cost contracts with cost overruns and shares fell last year. Turned around this year, though, by selling stake in a Bermuda airport and road-building business. Demand for their work continues to grow. Likes this long-term. Yields 5.6%. Good long-term. Those fixed-cost contracts will recover in time.

The engineering and construction sector has really been impacted by cost inflation. Lots of problems with fixed-price contracts, will take time to go through the system, and so the repricing cycle is longer. Be cautious. Layer in, don't weight over 5%. You don't want to be all in if sentiment is going to tick down.

(A Top Pick Feb 01/22, Down 35%)

Still mired in cost overruns that's lasting longer than he expected. That said, roads still need to be built and ARE will benefit. Valuation has been punished. Look at Stantec instead in this space, but he is holding onto ARE. He expects a recovery.