Shares of Aecon Group (TSX: ARE) fell by 15% this week after the company reported earnings. The fall lifted the Aecon stock’s dividend yield to over 8%, even as shares rebounded slightly by 5% the next day.
With a share price that’s far lower and a dividend yield that’s far higher than normal, should investors consider Aecon stock?
Why the drop?
Shares of Aecon stock dropped after yet another quarter of large losses. Analysts also became less confident in the stock, stating there were “too many moving parts.” This has left investors and analysts alike unsure of what to expect in the near future from the stock.
Shares dropped as Aecon stock saw revenue fall 6% year over year to $1.24 billion. Consolidated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) hit $32 million, which was less than half of projected income. This created an adjusted earnings per share loss of $0.03
Management’s statements were far more positive about the results, of course. The company came out saying it was divesting legacy contracts to focus more on projects that will yield positive results. This included the sale of the Bermuda International Airport project. Yet analysts remained unconvinced.
Analysts weigh in
The divestment of these legacy projects merely “chip away at the problematic portfolio,” said one analyst. And as these projects won’t be completed until 2025, there is still even more risk in the near future of write-downs.
Even with the sales, the balance sheet isn’t yet completely stable. Even with the company’s $150 million investment from Oaktree Capital Management, the future looks still uncertain as to when this will turn into positive profits. But it wasn’t all bad news from analysts. Others saw the completion of legacy projects as a good move, and in the next several quarters, performance should be quite strong as these get underway.
Overall, it seems that Aecon stock is getting slowly but surely back to ground zero. While it continues to see losses coming in, in the long term, there should be a significantly improved cash flow performance, according to other analysts. So, what should investors do now?
Looking ahead
In the near term, Aecon stock looks like it’s going to remain volatile. Because of this, and in such a volatile market, it’s probably best that you steer clear of Aecon stock for the time being, at least. Even with such a high dividend yield, it looks as though this could be cut in the future to help balance the balance sheet.
That being said, keep it on your watch list. The company has a backlog of $6.2 billion, with more and more long-term growth opportunities available — especially as the world shifts to the need for even more infrastructure, specifically amid utilities and renewable energy. So, don’t count the stock out yet. But as for buying Aecon stock for a dividend yield, I wouldn’t pick it up today. But if you have it already, I wouldn’t sell it either. The future could be quite bright for this construction company — at least, eventually.
