Aecon Group (TSX:ARE) is one of Canada’s largest publicly traded construction and infrastructure development companies. The company generated $4.2 billion in revenue in 2024 and its current backlog is at record levels of $10.7 billion.
Let’s take a look at why I think that this Canadian stock is the one to buy for exposure to increased public spending.
Infrastructure spending is booming
Before I get into the specifics on Aecon, I would like to review government spending plans.
The Parliamentary Budget Office (PBO) estimates that the Government of Canada will spend $159 billion on infrastructure in the next five years. The areas of focus are the same as they have been, but they bear repeating. They include investments in public transit, renewable energy, communities and housing, trade and transportation, and rural and northern communities.
This spending boom is a big part of what’s driving Aecon’s growth and with the investments still underway, it will continue to drive growth in the future. Aecon’s stock price has already been reflecting this positive infrastructure spending environment. As you can see from the graph below, the stock has rallied 74% in the last five years.
Aecon’s results are also booming
In Aecon’s latest quarter, the impact of all of this spending was evident. Adjusted revenue came in at $1.3 billion, 31% higher than the same period last year. This was driven by strength in nuclear spending in Ontario and the US, as well as strength in civil spending, which includes road building and mass transit spending. Finally, it was driven by spending on utilities and gas distribution infrastructure.
While Aecon’s bottom line results were less than impressive, with earnings per share (EPS) coming in at a loss of $0.09, there is light at the end of the tunnel for the company’s profitability. Management’s focus remains on improving profitability.
In the last five years, Aecon’s business has benefitted from all of these positive trends. And this is reflected in the company’s financial results. For example, revenue increased 16.4% to $4.2 billion in this time period and its net income increased 122% to $161.9 million. Also, Aecon’s backlog is at record levels.
Focus on risk and profitability
Before I close off, I would like to review Aecon’s bottom-line performance – a net loss. Cost overruns and challenges on pandemic-era projects are to blame. This will no longer be an issue as these projects reach full completion. Aecon’s new way of doing things is all about minimizing the risks and maximizing profitability. For example, the company has a strong recurring revenue base and has taken a lot of the risk out of its projects by entering into partnerships, so as to limit its debt load.
The bottom line
Aecon is the Canadian stock to own today to benefit from the infrastructure spending boom. This boom reflects the significant amount of infrastructure investment underway in North America. The current infrastructure is simply old and in need of replacement and/or updating. Also, the transition to a net zero economy is necessitating significant investments in order to build out the infrastructure to support this transition.
