Arcosa Stock Forecast [Upgrading U.S. Infrastructure]

Arcosa Stock Forecast: There has been a lot of discussion about the US infrastructure in recent years. The media regularly reports that the nation’s infrastructure is outdated, and substantial investment is needed for updates and repairs.

However, the phrase “crumbling infrastructure” doesn’t give a complete picture of the varied components encompassed within this term. Infrastructure refers to a wide range of public structures that contribute to qualify of life.

Airports, roads, highways, bridges, public transit services, and ports are just the beginning. Infrastructure also includes hospitals, schools, waterworks, sewer systems, dams, and power plants, among others.

Every one of these plays a critical role in the country’s total economic output, as well as contributing to the health and welfare of the American public.

US Infrastructure Awarded D+ Rating By Engineers

Just after World War II, the US made huge investments in infrastructure, opening hundreds of new airports, creating an interstate highway system, expanding ports, and dramatically improving waterworks. These improvements made the economic boom of those decades possible. However, those structures have aged and become outdated, and fresh investment is needed.

The American Society of Civil Engineers (ASCE) has examined various elements of the nation’s infrastructure and rated the collective results at “D+” or poor. The estimated cost of bringing that grade up to a “B” or good rating by 2025 would be at least $4.6 trillion.

So far, various federal, state, and local governments haven’t committed the full amount, but approximately 55 percent of the work is funded. That means companies that specialize in infrastructure solutions are in the right place at the right time to participate in infrastructure projects.

Arcosa one company committed to being a part of the future of infrastructure by creating advanced solutions for fundamental infrastructure concerns. As investors examine opportunities to be a part of the focus on infrastructure improvements, they want to know, is Arcosa stock a buy?

What Does Arcosa Do?

Arcosa [NYSE: ACA] operates three  businesses from its headquarters in Texas. All are focused on infrastructure, and they include:

  • The Construction Products Group,
  • The Transportation Products Group; and
  • The Energy Equipment Group.

The company serves markets throughout North America, providing advanced solutions for infrastructure needs ranging from transportation to energy production.

Arcosa’s management team has developed a disciplined growth strategy that integrates organic growth with acquisitions. The infrastructure industry tends to be quite fragmented, so Arcosa has a variety of options when purchasing businesses that complement and advance its core operations.

This acquisition strategy has permitted Arcosa to stay on the cutting edge of larger infrastructure trends. For example, Arcosa is leading the charge to repair and replace aging elements of the transportation system, and it is at the forefront of the shift to renewable energy.

Most recently, Arcosa completed the purchase of Cherry Companies, a leading producer of construction materials – specifically natural and recycled aggregates.

Arcosa’s strategy is sound, and there is certainly demand for its products, but does that make Arcosa stock a buy?

Is Arcosa Stock a Buy?

In January 2020, the construction sector outpaced the S&P 500 to the tune of almost 60% when comparing share price performances.

Arcosa [NYSE: ACA] hasn’t kept up with these indexes, instead showing a loss of 0.71 percent for the month. This may be due to analyst expectations of lower year-over-year earnings per share when Arcosa reports its next quarterly financials.

Analysts have projected earnings per share to come in at $0.34, which is a decrease of 15 percent as compared to the same quarter last year.

However, the good news is that net sales are expected to come in at $485 million, which represents a year-over-year increase of 29.54 percent. That indicates a positive outlook for the business going forward.

Better still, big gains are expected for the construction sector as a whole. This area of the market is currently ranked in the top 20 percent of growth industries by experienced market professionals.

At this point, most market experts have ranked Arcosa stock as a buy or a strong buy, thanks to the likelihood of future profits and the comparatively low share price. Of course, as with any investment, buying Arcosa shares is not without risk.

What are the Risks of Buying Arcosa?

The biggest issue facing any infrastructure business is the complications that come with government involvement. Most infrastructure projects are managed by federal, state, and local lawmakers, whether directly or indirectly. As a result, political factors come into play, and any number of obstacles can delay or scrap a project altogether. It’s common for priorities to change during the election cycle, and even improvements that are already underway can run into problems with funding and approvals.

As lawmakers come and go, companies supplying or completing infrastructure projects may be impacted by changing management philosophies. This can have an effect on revenue and earnings, which leads to fluctuation in stock prices.

WIth that said, Arcosa is in a solid position to weather political storms. As mentioned, it has a diverse mix of products that can supply all sorts of infrastructure repairs and improvements. If there is a dip in one area, chances are the business can recover through other divisions.

Arcosa Stock Forecast: The Bottom Line

The bottom line is that Arcosa stock is a solid buy for all types of investors. The need for infrastructure-related products and services is growing rapidly, and public sentiment is generally supportive of taxpayer-funded infrastructure improvements.

In addition, Arcosa’s leadership has demonstrated its skill in executing a thoughtful, deliberate growth strategy.

This has placed Arcosa in an ideal position to supply much-needed public infrastructure improvements. If you are looking for an opportunity to add the construction industry to your portfolio, Arcosa is a smart choice.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.