Valued at a market cap of $28 billion, WSP Global (TSX: WSP) is a blue-chip giant that has delivered stellar gains to shareholders in the past decade. Since March 2014, WSP stock has returned 550% to investors. After adjusting for dividends, total returns are much higher at 717%. The TSX stock currently trades near all-time highs, surging over 20% year to date. Let’s see if you should add WSP Global to your equity portfolio in 2024.
An overview of WSP Global
WSP Global is a professional services consulting firm operating in North America, Europe, Australia, and other markets. The company designs and manages projects in verticals such as rail, transit, aviation, bridges, tunnels, and urban infrastructure for public and private client partners. Additionally, it offers engineering and consultancy services, including decarbonization strategies.
Over the years, WSP Global has advised governments and the private sector in earth sciences and environmental sustainability to conduct due diligence, regulatory compliance, waste materials management, and land remediation studies, among others.
In 2023, around 63% of WSP’s annualized revenues were derived from activities supporting the United Nations’ sustainable development goals.
How did WSP Global perform in 2023?
In fiscal 2023, WSP Global reported net sales of $11 billion, an increase of 22% year over year. It delivered adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $1.9 billion, indicating a margin of 17.6%, up from 17.1% in the year-ago period.
WSP derived 41% of sales from the transportation and infrastructure segment, followed by 33% from earth & environment, 19% from property and buildings, and 7% from the power and energy industry.
Its adjusted net earnings in 2023 stood at $860 million, or $6.90 per share, indicating an increase of 24% year over year due to widening profit margins, partially offset by higher interest on long-term debt.
WSP’s cash flows and acquisitions
In addition to share price appreciation, WSP also pays shareholders an annual dividend of $1.50 per share, translating to a forward yield of 0.67%. In the fourth quarter (Q4) of 2023, WSP paid shareholders a quarterly dividend of $0.375 per share, or $46.8 million. Comparatively, it generated a free cash flow of $610.3 million, indicating a payout ratio of just 7.7%.
We can see that WSP has enough room to reinvest in growth projects, target accretive acquisitions, lower balance sheet debt, and increase dividends further.
In 2023, WSP acquired four companies operating in companies in verticals such as engineering consulting, structural engineering, and engineering services, which should drive future cash flows higher.
Is WSP Global stock undervalued?
Despite its massive size, WSP is on track to increase sales from $10.9 billion in 2023 to $12.4 billion in 2025. Its adjusted earnings are forecast to widen from $6.9 per share to $9 per share in this period. So, WSP stock is priced at less than three times forward sales and 25 times forward earnings, which is not very expensive.
Out of the 10 analysts covering WSP stock, six recommend “buy” and four recommend “hold. Bay Street has an average target price of $238.50 for WSP, indicating an upside potential of 6.25% from current levels.
