In complex adaptive systems like modern financial markets, a change the price of any one market has ...
4 Plays on Infrastructure
07/07/2016 9:00 am EST
Three years after the American Society of Civil Engineers (ASCE) gave US infrastructure a D+ grade, US roads, bridges, electrical grids, and water systems remain in dire shape, observes Jim Corridore, S&P Global Market Intelligence Equity Analyst, in S&P The Outlook.
A new report from ASCE issued on May 24th highlights the dangers and incremental costs of further delay, and calls attention to the addressable opportunity for construction and engineering companies.
Some catalysts for increased spending, according to S&P Global Market Intelligence, include the new $305 billion comprehensive transportation bill, as well as pressure from Congress to address the funding gap between infrastructure needs and available appropriations.
In addition, infrastructure has emerged as a Presidential election issue, which will likely drive increased focus.
Finally, the rise of Public Private Partnerships between government and private entities presents a viable way to get funding for projects.
Risk factors to our thesis include government budget impasses, a severe economic downturn, and lack of traction on PPP projects, which could all lead to further delays in infrastructure activity.
Offsetting this, the severe backlog of critical projects throughout the country means some increased spending is likely to be inevitable.
Let's take a look few names that can benefit from increased infrastructure spending.
Astec Industries (ASTE) makes equipment used in road building, pipeline construction, and other infrastructure projects. It would directly benefit from increased transportation and energy infrastructure spending expected over the next couple of years.
Chicago Bridge & Iron (CBI) is a large, turnkey provider of engineering and construction for large-scale projects around the world, primarily in the energy sector, but 18% of revenues in 2015 were related to non-energy.
Fluor (FLR) is the world's largest engineering and construction company with $18 billion in revenues in 2015 (down from $21 billion the prior year) and a backlog of $48 billion at the end of the first quarter of 2016.
Heavily exposed to oil and gas, the company also has a huge presence in industrial and infrastructure markets. Despite the company's global presence, the US is an important market, with 38% of revenue coming from America.
Jacobs Engineering (JEC) is likely to benefit in calendar 2016 from growth in infrastructure projects – including increased public spending on schools and other big projects -- offsetting weakness in oil and gas and chemicals.
By Jim Corridore, Equity Analyst in S&P The Outlook
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