The U.S. Federal Reserve surprised everyone in September by slashing interest rates by 50 basis points, marking its first rate cut in more than four years. This major move by the Fed followed three consecutive rate cuts by the Bank of Canada to stimulate economic growth amid global uncertainties.
These monetary policy moves have driven the Canadian stock market to new heights, with the TSX Composite crossing the important 24,000 mark for the first time in history. However, not every stock is riding the wave. For example, Badger Infrastructure Solutions (TSX:BDGI) has been under pressure, currently trading down over 28% from its 52-week high. With the TSX benchmark at all-time highs and interest rates falling, could this be the catalyst for BDGI stock to stage a comeback?
In this article, I’ll highlight some key fundamental factors that could play a key role in deciding Badger stock’s future performance. Let’s dive into the details.
Badger Infrastructure stock
If you don’t know it already, Badger Infrastructure Solutions is a Calgary-headquartered company with a market cap of $1.3 billion as its stock trades at $36.80 per share after witnessing 28.2% value erosion over the last six months. The company primarily focuses on hydrovac services, providing non-destructive excavation solutions across North America. In simple terms, its business model revolves around offering safe and efficient digging services for sectors like construction, utilities, and energy. Despite its strong market presence and expertise in non-destructive excavation, Badger Infrastructure Solutions has struggled to maintain investor confidence.
In the second quarter of 2024, Badger’s revenue rose 9% YoY (year over year) to US$186.8 million. On the profitability side, its adjusted quarterly EBITDA (earnings before interest, taxes, depreciation, and amortization) climbed by 14% YoY to US$44.6 million, with the EBITDA margin expanding to 23.9% from 22.8% a year ago.
A large portion of Badger’s revenue growth came from the U.S. market, where its revenue surged by 14% from a year ago to US$165.6 million. However, the story was different in Canada, where the company’s revenue slipped by 19% YoY to US$21.2 million due mainly to delays in several major infrastructure projects. This weakness in its Canadian operations and the economic uncertainty could be the primary reasons for disappointing its investors and driving its share prices lower of late.
Can Badger turn things around?
While falling revenue in the Canadian market has weighed on Badger Infrastructure’s overall financial performance in recent quarters, its management remains optimistic about a recovery in the latter half of the year, as those delayed projects are expected to start.
Moreover, falling interest rates could help Badger in a couple of ways. First, lower borrowing costs could stimulate broader economic activity, leading to an increase in infrastructure projects across North America, including in Canada, where Badger has faced concerns. Second, lower rates could also ease Badger’s financing costs, allowing the company to invest more efficiently in operational capacity in the U.S., where it already sees strong demand. Considering these factors, there is still hope on the horizon that Badger Infrastructure could turn things around in the coming quarters, which should help its share prices recover.
