S&P Eyes Infrastructure

11/02/2016 9:00 am EST

Focus: STOCKS

With both major presidential candidates having highlighted infrastructure spending as a campaign priority, we think infrastructure spending is likely to see a boost after the election, explains Jim Corridore, equity analyst with CFRA Research.

Regardless of who wins the election, given the age and condition of U.S. infrastructure, we see likely spending increases over the next several years just to keep roads, bridges, electric transmission facilities and other major infrastructure operational.

We see the following companies benefiting from increased infrastructure spending.

Fluor Corp. (FLR) is one of the world's largest engineering, procurement and construction companies, and as of June 30, had a backlog of $47 billion.

Its industrial and infrastructure unit accounted for 22% of its $18 billion in 2015 revenues, and we see this unit as the major beneficiary of increased infrastructure spending.

However, FLR is a global company, and gets only 40% of its total revenues in the U.S. We think FLR is likely to increase its investment in the U.S. infrastructure space, primarily for rail, highway and bridge projects.

We see revenue growth of 5% in 2016, about flat in 2017, but see our recommendation on the stock supported by an attractive valuation and a strong backlog.

Jacobs Engineering (JEC) is a global engineering and construction firm with $12 billion in annual revenues. As of June 30, it had a backlog of $18.3 billion.

We expect the company to use its cash balances for acquisitions, including within the infrastructure space.

With energy markets challenging, we think infrastructure is one place JEC will place an increased focus over the next couple of years.

Quanta Services (PWR) provides specialty contracting services in the electric transmission and oil and gas industries.

We think increased capital investment in the U.S. electrical power grid would be a big catalyst for the company, and is likely as an aging U.S. power grid needs investment.

We expect utilities to increase spending over the next few years on electric transmission. At the same time, PWR is likely to benefit from increased construction of oil and gas pipelines in the U.S.

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By Jim Corridore, Equity Analyst at CFRA Research

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