Sterling Construction Co., Inc. – Value Analysis (NASDAQ:STRL) : December 26, 2017

Capitalcube gives Sterling Construction Co., Inc. a score of 44.

Our analysis is based on comparing Sterling Construction Co., Inc. with the following peers – Granite Construction Incorporated, Tutor Perini Corporation, Primoris Services Corporation, Orion Group Holdings, Inc., MasTec, Inc., Great Lakes Dredge & Dock Corporation and IES Holdings, Inc. (GVA-US, TPC-US, PRIM-US, ORN-US, MTZ-US, GLDD-US and IESC-US).

Investment Outlook

Sterling Construction Co., Inc. has a fundamental score of 44 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • It currently trades at a Price/Book ratio of (3.16).
  • The market expects faster earnings growth from STRL-US than from its peers and also a turnaround in its current ROE.
  • STRL-US has relatively low net profit margins while its asset efficiency is relatively high.
  • The company’s year-on-year change in revenues and earnings are better than the median among its peer group.
  • STRL-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.
  • Compared with the peers chosen, STRL-US has had faster revenue growth in prior years and a current P/E ratio that suggests faster growth in the future suggesting superior growth expectations.
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • STRL-US does not seem to have the flexibility to raise more debt.

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Leverage & Liquidity

STRL-US does not seem able to raise more debt easily.

  • STRL-US‘s debt at 20.54% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 22.85%), and interest coverage level of 2.42x, would make major new borrowings difficult.
  • All 7 peers for the company have an outstanding debt balance.

STRL-US has moved towards a median liquidity and leverage from a Constrained profile at the recent year-end.

  • STRL-US‘s interest coverage is upward trending and is above (but within one standard deviation of) its five-year average interest coverage of -22.23x.
  • Compared to 2016, interest coverage has remained relatively stable for both the company (2.42x) and the peer median (4.62x).
  • STRL-US‘s debt-EV has increased 17.42 percentage points from last year’s low and is now above its five-year average debt-EV of 13.44.
  • Though its debt-EV increased to 20.54% from 3.12% (in 2016), its peer median remained relatively stable during this period at 22.85%.
  • Relative to peers, debt-EV rose 16.98 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Granite Construction Incorporated 11.4 1.79 6.74 76.47
Tutor Perini Corporation 43.98 2.07 2.5 23.09
Primoris Services Corporation 20.11 1.49 12.61 54.45
Orion Group Holdings, Inc. 26.89 1.49 -2.73 14.79
MasTec, Inc. 25.16 1.74 7.85 39.96
Great Lakes Dredge & Dock Corporation 61.9 2.02 0.44 5.72
IES Holdings, Inc. 7.88 1.54 11.83 110.26
Sterling Construction Company, Inc. 20.54 1.44 2.42 29.14
Peer Median 22.85 1.64 4.62 34.55
Best In Class 7.88 2.07 12.61 110.26

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Company Profile

Sterling Construction Co., Inc. is a heavy civil construction company, which specializes in the building, reconstruction and repair of transportation and water infrastructure. Its transportation infrastructure projects include highways, roads, bridges, light rail and commuter rail. The company’s Water Infrastructure projects include water, wastewater and storm drainage systems. Sterling also provides general contracting services, including excavating, concrete and asphalt paving, installation of large-diameter water and wastewater distribution systems, construction of bridges and similar large structures, construction of light and commuter rail infrastructure, concrete and asphalt batch plant operations, concrete crushing and aggregates operations. It serves county and municipal public works departments, regional transit and water authorities, port authorities, school districts, and municipal utility districts. Sterling Construction was founded in 1991 and is headquartered in Houston, TX.


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