Opinions
The Panic-Proof Portfolio (Stockchase Research)
North American Construction Group
NOA-T
TOP PICK
Feb 09, 2023
Stock price when the opinion was issued
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We reiterate NOA, one of Canada's largest heavy construction and mining contractors as a TOP PICK. The company recently reported record revenue on wholly-owned business, as oil sands activity improved and operating margins widened. We like that cash reserves are growing, while debt is retired and shares bought back. It trades at 10x earnings and 2x book, while supporting a 24% ROE. We continue to recommend a stop-loss at $23, looking to achieve $30 -- upside potential of 18%. Yield 1.3%
(Analysts’ price target is $30.17)The stock was also up on very strong earnings, with EPS more than 14% ahead of estimates and sales more than 8% ahead. For a $900M company, the $395M acquisition is very significant. NOA entered Australia two years ago, and this deal instantly gives it scale and market share, and allows it to serve its global customers better. It also further diversifies its overall business. It adds about 1,400 employees and a $4B backlog. It is highly accretive to sales and earnings. Debt-financed, there is risk, but the earnings boost is substantial. We think it is a solid deal, and the stock remains cheap overall despite the gains last week.
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NOA is reiterated as a TOP PICK following its recent announcement to acquire an Australian heavy equipment services company. This will greatly expand their market reach. It currently trades at 13x earnings and supports a 26% ROE. Cash reserves are growing, while debt is retired and shares bought back. We recommend trailing up the stop (from $23) to $25, looking to achieve $40 -- upside potential of 19%. Yield 1.0%
(Analysts’ price target is $40.40)Trading at 11x earnings and 2.3x book, we again reiterate NOA as a TOP PICK. The company recently announced a $395 million acquisition in Australia that will expand their presence there further. We recommend trailing up the stop (from $25) to $26 at this time, looking to achieve $40 -- upside potential over 35%. Yield 1.2%
(Analysts’ price target is $40.40)Insiders own about 9% of NOA. On a one-year basis, its total return is 60%, it pays a small dividend of 1.5%, its five-year sales and earnings CAGR are impressive at 19% and 37%. Forward sales and earnings estimates are strong, and profit margins have been expanding nicely over the past several years. It is a smaller name ($740M market cap), and its free cash flow yield is around 5%. It trades at a cheap valuation of 6.4X forward earnings and 0.6X forward sales. It has some small-cap risks, but its fundamentals and share price performance have been strong. We feel that NOA looks fairly attractive here, although we would be mindful of position sizing and small-cap risks.
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We once again reiterate NOA, a heavy equipment services company operating in the oil sands sector, as a TOP PICK. It trades at 12x earnings and 2.2x book and supports a 23% ROE. Free cash flow from operations tripled last quarter, according to the latest reported earnings. We recommend keeping a tight stop at $26 at this time, looking to achieve $43 -- upside potential over 50%. Yield 1.3%
(Analysts’ price target is $43.83)We again reiterate NOA as a TOP PICK. NOA's First Nations partner just signed a service contract with a major oilsands producer effective immediately. This will be a good use of their heavy equipment and supports an order backlog now projected over $3 billion. It trades at 13x earnings, 2.4x book and supports a 23% ROE. We continue to recommend a stop-loss at $26, looking to achieve $43 -- upside potential of 38%. Yield 1.2%
(Analysts’ price target is $43.83)Our PAST TOP PICK with NOA has triggered its stop at $26. To remain disciplined, we recommend covering the position at this time. Combined with our previous recommendations, this will result in a net investment gain of 20%
We again reiterate NOA as a TOP PICK. Management reports the company is experiencing "less skilled trade vacancies and improved equipment utilization" as it emerges from the effects of the pandemic. It trades under 2x book value and supports a 20% ROE. The dividend is backed by a payout ratio under 20% of cash flow. We like that cash reserves have been growing, while debt is aggressively retired and shares are bought back. We recommend trailing up the stop (from $14) to $16, looking to achieve $24 -- upside potential of 16%. Yield %
(Analysts’ price target is $23.79)