Badger Infrastructure Solutions (TSX:BDGI) is the largest provider of non-destructive excavating and related services in North America. The company has grown significantly both organically and through acquisitions. Today, this $1.5 billion company is benefitting from its leading competitive position, efficient operations, and strong balance sheet. Here’s why Badger Infrastructure stock is an attractive long-term investment.
The business
Badger is in the excavating business. With its proprietary hydrovac excavation trucks that can operate even in the most sensitive and confined spaces, Badger has a clear competitive advantage.
Customers in need of Badger’s services include a broad and diversified set of small and large companies in different geographies and different industries. In the late 2010s, Badger embarked on a campaign to invest to diversify its business by expanding its U.S. footprint and diversifying its end markets beyond oil and gas.
In the last five years, the company has seen its revenue grow by 39% to $684 million and its operating cash flow increase by 55% to $132 million. Today, the U.S. represents a very significant portion of the company’s revenue and it operates in a variety of industries — oil and gas, utilities, construction, and the telecom industry.
Strong growth across the board
Badger Infrastructure has grown rapidly while also increasing its margins, returns, and its dividend. In fact, Badger’s earnings before interest, taxes, depreciation, and amortization (EBITDA) margin came in at 19.1% in its most recent quarter (+8.3% versus last year). This was accompanied by a 36% increase in earnings per share (EPS) to $0.19 and a 17% increase in its operation cash flow (before changes in working capital).
Turning to Badger’s dividend history, we can see the power of its business. In the last 10 years, Badger’s annual dividend has increased 109% to the current $0.75. This represents a compound annual growth rate (CAGR) of 7.6%.
Looking ahead, with its strong balance sheet and cash flows, Badger Infrastructure stock is well-positioned to continue investing in the business as well as providing shareholder returns through dividends and its share-buyback program.
Strong trends continue
North American infrastructure is forecasted to be a booming industry for a number of reasons. Firstly, we have an aging infrastructure that must be repaired, replaced, and updated. For example, lead pipe replacement programs, water treatment facility upgrades, and investments in bridge construction are all growing. This is a long-term secular trend that is only just beginning, as there’s a lot of work to do in this area.
Secondly, we have to move toward sustainability. This will require new infrastructure to support renewable energy, such as nuclear energy and electrification projects.
Badger Infrastructure will be right there in the heart of these projects and is forecasting strong demand, particularly in the U.S., as companies and governments invest in them. As a result, Badger plans to grow its hydrovac fleet by 4% to 7% in 2025. This will support the growth that the company expects. At the same time, management is remaining focused on its operating efficiency, returns, and balance sheet strength, as it always has been.
The bottom line
In summary, Badger Infrastructure is a quality stock that I’d buy and hold as a long-term investment as it continues to ride strong North American construction trends.
