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Bull Of The Day: Sterling Construction (STRL)

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Sterling Construction (STRL - Free Report) is a Zacks Rank #2 (Buy) and has a "B" for the growth style score.  Being the aggressive growth stock strategist I like to see "A" for growth but I don't always get what I want.  Sometimes I get more than what I want which is why this stock is the Bull of the Day.

Description

Sterling Construction Company, Inc., together with its subsidiaries, operates as a heavy civil construction company in Texas, Utah, Nevada, Colorado, Arizona, California, Hawaii, and other states in theUS. The company builds, repairs, and reconstructs transportation infrastructure projects, including highways, roads, bridges, airfields. Sterling Construction Company, Inc. was founded in 1955 and is headquartered in The Woodlands, Texas.

Recent Earnings

On October 30, the company reported EPS of $0.26 when $0.22 was expected. It was the third consecutive beat of the Zacks Consensus estimate and good for an 18% positive earnings surprise. 

Revenues were sharply higher than expected.  The company posted sales of $304M when the Zacks Consensus Estimate was calling for $262M.  That $42M difference translates to a 16% positive revenue surprise.

Importantly, the company guided higher as well in moving the revenue range from between $850M - $880M to $915M to $935M when the consensus was calling for $875M.

Stocks that beat and then raise guidance have the best chance of seeing a post earnings drift higher.

Estimate Revisions

Over the last several months, the Zacks Consensus Estimate has been moving higher. Back in July, the Zacks Consensus Estimate for 2017 was sitting at $0.36 but bumped up to $0.39 in August. By October the number was up to $0.44 and we are currently at $0.45.  Those are all positive moves in the right direction.

The 2018 number hasn't seen as much movement. It was $0.96 back in May and moved to $0.98 in October and that has been the only movement.  Still, that number implies some very strong earnings growth for next year.

Valuation

As noted above, the earnings growth for next year is more than 100% -- well 119% to be exact, so you are going to have to pay for that kind of earnings growth.  The forward PE for STRL is 38x and that is more than double the industry average of 16x.  The price to book multiple of 3.2x is only slightly higher than the 2.8x industry average.  Finally, the price to sales multiple of 0.5x is well below the industry average of 0.9x.

Chart

 

 

The chart also tells me not to expect any tax loss selling in the coming weeks.

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