Canadians have a lot to be thankful for post-Thanksgiving Day. With the unemployment rate falling for the first time since January 2024 and the high interest rate environment over, a bull market could be on the horizon. The TSX topped 24,470 (+16.8% year-to-date) entering mid-October, which is above the year-end projection of 24,350 of Trading Economics.
The good news is that many stocks still trade below their intrinsic values. A strong buy today is Badger Infrastructure Solutions (TSX: BDGI). This industrial stock is undervalued at $40.43 per share (+0.6% year-to-date), considering its long growth runway and enormous profit potential. Market analysts see a 28.2% upside in 12 months to $56.30. The return is higher if you include the 1.8% dividend yield.
Don’t pass up on this buying opportunity; a few years from now, you might wish you had bought the small-cap stock.
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Competitive MOAT
Badger Infrastructure serves vital infrastructure industry segments such as construction, energy, industrial, telecommunications, transportation, etc. The $1.4 billion company provides non-destructive excavating and related services to clients in North America. It boasts a significant competitive moat through Badger Hydrovac, a cutting-edge technology.
According to management, Badger is on a strategic journey towards achieving profitability above historic levels. The company built its growth foundation from 2017 to 2021 and then executed its commercial strategy, including robust pricing in 2022 and 2023.
Now, Badger expects growth and operating scalability in 2024 and beyond. The objectives are to drive growth in the Hydrovac market and market share in key urban markets across North America.
Huge addressable market
Badger sees strong demand tailwinds and is well-positioned to capture market opportunities. Besides a huge addressable market in core segments, the under-penetration of non-destructive excavation creates significant growth opportunities. The core segments consist of manufacturing and industrial, sewage and waste disposal, water supply, highway and street, and transportation.
Moreover, macro trends support long-term opportunities in the five core segments (7% to 9% growth rate). Semiconductors will lead growth in the manufacturing segment, while spending on bridge construction and capacity expansion projects in highways and streets could reach billions.
Financial performance
In 2023, revenue grew 20% year-over-year to a record US$683.8 million, while net income jumped 56.2% to US$41.8 million compared to 2022. Badger has raised the revenue bar and projects a 12% to 14% compound annual growth rate (CAGR) in four years (to 2027). A US$300 million five-year committed credit facility will fund its organic growth strategy.
In the first half of 2024, total revenue and adjusted net earnings rose 9.6% and 15.7% respectively to US$348.4 million and US$20.3 million from a year ago. Its President & CEO, Rob Blackadar, said, “The execution of our commercial, sales and pricing strategies have set the foundation for Badger to continue its journey as the industry leader in non-destructive excavation in 2024.”
Notably, revenue in Q2 2024 increased 8% to US$186.8 million versus Q2 2023. Capital expenditures also dropped 42% year-over-year to US$29.1 million. “We are now in our busy construction season and remain focused on pricing, sales and utilization to continue to drive revenue growth and profitability,” Blackadar added.
Leadership position
Badger has cemented its leadership position in the non-destructive excavation industry. The ever-growing demand in its end markets, especially infrastructure, utilities, and non-residential construction, ensures long-term growth and profitability.
