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Will Margin Gains in Infrastructure Continue for Sterling in 2025?
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Key Takeaways
STRL's Q1 gross margin rose to 22%, up 400 bps from the year-ago quarter.
E-Infrastructure margins hit 23.2%, driven by a focus on mission-critical projects like data centers.
A $1.2B backlog in E-Infrastructure and improved project mix support margin strength in 2025.
Sterling Infrastructure, Inc.’s ((STRL - Free Report) ) strategic focus on high-value infrastructure projects is reshaping its margin profile and reinforcing earnings quality. In the first quarter of 2025, the company reported a gross margin of 22%, up 400 basis points (bps) from the prior-year period. Adjusted operating margins in the E-Infrastructure segment also expanded nearly 618 bps year over year to reach 23.2%, backed by a growing focus on mission-critical projects such as data centers.
This trend is partly due to Sterling’s disciplined project selection strategy. The company continues to prioritize large, complex builds where execution strength and speed are valued, helping it avoid lower-margin work. In Transportation Solutions, a mix shift toward aviation and rail projects, along with reduced exposure to low-bid heavy highway work, has also contributed to margin expansion.
Looking ahead, Sterling expects full-year infrastructure growth to be supported by multi-year backlog visibility. The E-Infrastructure segment alone holds $1.2 billion in backlog, with the total pipeline nearing $2 billion when including future phase work. This backlog is not only sizeable but also weighted toward higher-margin projects, which bodes well for sustained profitability.
However, challenges remain. Execution risks, potential permitting delays and material cost fluctuations could limit further expansion. Despite these factors, the company appears well-positioned to maintain and potentially expand its infrastructure margins through the rest of 2025, supported by favorable project mix, improved pricing discipline and strong customer demand in data centers and onshoring developments.
Peers Strengthen Focus on High-Return Infrastructure Projects
As Sterling aims to maintain the margin momentum in infrastructure, it competes with peers like Quanta Services, Inc. ((PWR - Free Report) ) and EMCOR Group, Inc. ((EME - Free Report) ), who are also active in high-return sectors such as data centers and transportation.
Quanta Services is seeing strong momentum in its Electric Infrastructure Solutions segment, formed by combining electric power and renewable energy operations. As of March 31, 2025, the segment’s 12-month backlog was $16.37 billion compared with $13.69 billion a year earlier. The expansion reflects growing demand for electric grid upgrades, data centers and AI-driven infrastructure needs. The segment’s operating margin improved 60 bps year over year to 8.3% in the first quarter. For 2025, the segmental operating margin is expected to be between 10% and 10.5%, supported by strong execution and end-market diversification.
EMCOR Group is benefiting from sustained demand across mission-critical infrastructure such as data centers, healthcare and advanced manufacturing. In the first quarter of 2025, the U.S. Electrical Construction and Facilities Services segment reported an operating margin of 12.5%, up 50 bps year over year. The U.S. Mechanical Construction and Facilities Services segment posted an operating margin of 11.9%, rising 130 bps year over year. Both segments continue to operate with solid backlog levels, driven by consistent project activity in network, semiconductor and utility-related infrastructure.
STRL’s Price Performance, Valuation and Estimates
Sterling stock has gained 107.9% in the past three months, outperforming the Zacks Engineering - R and D Services industry’s growth of 48%.
Image Source: Zacks Investment Research
From a valuation standpoint, Sterling is currently trading at a premium with a price-to-earnings ratio of 26.14X compared with the industry’s average of 21.56X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Sterling’s 2025 and 2026 EPS has remained unchanged over the past 30 days. The estimated figure indicates 41.2% and 10.1% year-over-year growth, respectively.
Image: Bigstock
Will Margin Gains in Infrastructure Continue for Sterling in 2025?
Key Takeaways
Sterling Infrastructure, Inc.’s ((STRL - Free Report) ) strategic focus on high-value infrastructure projects is reshaping its margin profile and reinforcing earnings quality. In the first quarter of 2025, the company reported a gross margin of 22%, up 400 basis points (bps) from the prior-year period. Adjusted operating margins in the E-Infrastructure segment also expanded nearly 618 bps year over year to reach 23.2%, backed by a growing focus on mission-critical projects such as data centers.
This trend is partly due to Sterling’s disciplined project selection strategy. The company continues to prioritize large, complex builds where execution strength and speed are valued, helping it avoid lower-margin work. In Transportation Solutions, a mix shift toward aviation and rail projects, along with reduced exposure to low-bid heavy highway work, has also contributed to margin expansion.
Looking ahead, Sterling expects full-year infrastructure growth to be supported by multi-year backlog visibility. The E-Infrastructure segment alone holds $1.2 billion in backlog, with the total pipeline nearing $2 billion when including future phase work. This backlog is not only sizeable but also weighted toward higher-margin projects, which bodes well for sustained profitability.
However, challenges remain. Execution risks, potential permitting delays and material cost fluctuations could limit further expansion. Despite these factors, the company appears well-positioned to maintain and potentially expand its infrastructure margins through the rest of 2025, supported by favorable project mix, improved pricing discipline and strong customer demand in data centers and onshoring developments.
Peers Strengthen Focus on High-Return Infrastructure Projects
As Sterling aims to maintain the margin momentum in infrastructure, it competes with peers like Quanta Services, Inc. ((PWR - Free Report) ) and EMCOR Group, Inc. ((EME - Free Report) ), who are also active in high-return sectors such as data centers and transportation.
Quanta Services is seeing strong momentum in its Electric Infrastructure Solutions segment, formed by combining electric power and renewable energy operations. As of March 31, 2025, the segment’s 12-month backlog was $16.37 billion compared with $13.69 billion a year earlier. The expansion reflects growing demand for electric grid upgrades, data centers and AI-driven infrastructure needs. The segment’s operating margin improved 60 bps year over year to 8.3% in the first quarter. For 2025, the segmental operating margin is expected to be between 10% and 10.5%, supported by strong execution and end-market diversification.
EMCOR Group is benefiting from sustained demand across mission-critical infrastructure such as data centers, healthcare and advanced manufacturing. In the first quarter of 2025, the U.S. Electrical Construction and Facilities Services segment reported an operating margin of 12.5%, up 50 bps year over year. The U.S. Mechanical Construction and Facilities Services segment posted an operating margin of 11.9%, rising 130 bps year over year. Both segments continue to operate with solid backlog levels, driven by consistent project activity in network, semiconductor and utility-related infrastructure.
STRL’s Price Performance, Valuation and Estimates
Sterling stock has gained 107.9% in the past three months, outperforming the Zacks Engineering - R and D Services industry’s growth of 48%.
Image Source: Zacks Investment Research
From a valuation standpoint, Sterling is currently trading at a premium with a price-to-earnings ratio of 26.14X compared with the industry’s average of 21.56X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Sterling’s 2025 and 2026 EPS has remained unchanged over the past 30 days. The estimated figure indicates 41.2% and 10.1% year-over-year growth, respectively.
Image Source: Zacks Investment Research
STRL currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.