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Buy Alert: This 4.3%-Yielding TSX Giant Can Return 30% in the Next Year

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I like companies that have weathered multiple financial crises. It’s a testament to their business models and resilience that they are able to navigate out of tough situations.

Aecon Group (TSX:ARE) has been around for over 140 years, and it has continued to be a steady performer in the construction and infrastructure space. Aecon reported its results for the second quarter, and while Q2 was tough, a major positive for the company is that it has lined up a record order book, as projects have been delayed.

Revenue for the second quarter ended June 30, 2020, came in at $779 million, 10% lower compared to the second quarter of 2019. The company reported an operating loss of $1 million, $29 million lower compared to an operating profit of $28 million in 2019.

Aecon operates in two segments: construction and concessions. The concessions segment provides project development, financing, investment, and management services to various companies and projects.

Construction revenue was $778 million, 8% lower than the same quarter last year. Revenues in civil operations, urban transportation systems, and nuclear operations were lower because of the pandemic slowdowns, but they were offset by road-building projects.

The utilities operations from Voltage Power also added to the revenues. The concessions segment had an 86% drop in revenue to $9 million from $63 million in 2019. This was due to commercial flight operations getting suspended at the Bermuda International Airport due to the COVID-19 pandemic and construction activity slowing down.

Record order book

Aecon had an order book with a record $7.3 billion backlog position, the highest ever in the company’s history compared to $6.8 billion a year earlier, representing an increase of 7%. Out of this, $1.1 billion is a contract for medium jobs and industrial jobs.

There have been no big announcements, but Aecon bagged a contract from Western Canada. Another piece of good news is that there are no previously recorded projects in the company’s backlog that have been cancelled due to COVID-19.

A lot of governments in regions where Aecon operates have deemed their construction projects as essential services. Operations are going on, albeit on a modified basis in some places. The company doesn’t expect a big impact of the pandemic in Q3, but it has said that it expects Q3 to be stronger than Q2.

Further, the third quarter will start looking like a normal quarter for the construction segment, with the exception in its nuclear vertical. Nuclear will continue at a very low run rate in Q3, as the ramp-up on the next phase of work has been delayed until late in the third quarter and into the fourth quarter.

The Bermuda International Airport will also be a gradual ramp-up. When the airport opened on July 1, it was operating at a 5-10% capacity. Aecon doesn’t expect a quick bounce back here, and it expects Bermuda to “be a drag on margins at a consolidated level.”

The stock trades at $14.68 right now, $0.5 below the level at which it was trading when I wrote about it in May this year. The target for this stock is $20, and a forward yield of 4.3% makes it a good defensive buy for your portfolio.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

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