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Bull of the Day: Arcosa, Inc (ACA)

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2019 brought many of the most highly anticipated initial public offerings in recent memory. A huge number of well-known brands hit the public equity markets for the first time and the term “unicorn” – referring to a company that achieved more than a billion dollars in value before its IPO – became frequently used in the financial press.

With a crop of new stocks like Uber (UBER - Free Report) , Lyft (LYFT - Free Report) , Peloton (PTON - Free Report) , Beyond Meat (BYND - Free Report) , Pinterest (PINS - Free Report) and many more suddenly available to ordinary retail investors, it’s understandable that less exciting names didn’t end up getting a whole lot of attention.

Many of the most popular IPOs struggled coming out of the gate. Big private valuations and concerns about a path to profitability have investors cautious of buying up the shares in the secondary market, even for companies with well-known goods and services that those same investors frequently use.

Debuting on the public stage at the end of 2018, Arocsa Inc (ACA - Free Report) has been quietly beating analyst estimates and growing shareholder value. Unlike some of the big new-stock names, Arcosa is consistently profitable even as it grows. After nearly doubling in its first year, Arcosa shares still trade at a thoroughly reasonable 12-month forward P/E Ratio of 17.4X – lower than the S&P 500.

Infrastructure has been a hot industry for years with a strong economy and help from big-spending Federal, state and local governments who are finding it easy to appropriate huge sums to projects intended to shore up the nation’s roads, bridges and energy capital.

Arcosa’s business is split into three separate units – Construction, Energy and Transportation and all of those lines have been booming.

Construction provides huge amounts of aggregate and specialty materials as well as the know-how to guide clients through every stage of enormous projects.

Energy creates wind towers, utility transmission structures and storage tanks. The company’s focus on clean, renewable energy leaves it well positioned to capitalize on global trends toward environmentally sustainable sources.

Transportation provides barges and marine hardware and a wide variety of equipment for the rail industry. Barges may not exactly sound like a very exciting business line, unless you consider that during just the past quarter, Arcosa's order backlog bacjlog for barges increased to $364 million.

Construction and Transportation each make up just about 25% of revenues with energy filling in the other half. That diversification of revenue sources means Arcosa is well-insulated from a temporary downturn in any given segment. All three divisions showed quarterly and YoY revenue increases.

In the first three quarters that Arcos has been reporting results as a public company, they’ve beat the Zacks Consensus Earnings Estimates by 81%, 41% and 51%, bringing the average surprise to almost 58%.

Sales are expected to grow 16.5% in 2020 and net earnings are forecast to increase by 14.5%. Recently rising estimates earn Arcosa a Zacks Rank #1 (Strong Buy).

While the infrastructure industry doesn’t have the cache of high-tech offerings like ride-sharing, food delivery, fitness and internet apps, that can actually be good news for careful investors who are more concerned about profitability and valuation metrics than they are about hype.

Everyone loves an interesting story, but for the long term health of a portfolio, consistently profitability in a growth industry is much more important.

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