Stantec (TSX:STN) Inc (STN) has seen an “impressive” relative share price performance over the past one to five years, but Stifel GMP analysts believe that while there is a modest amount of room for multiple expansion, the more meaningful value creation tool will need to be M&A.
In a note published on Sunday, they wrote that the sustainable design and engineering company can self finance earnings per share (EPS) growth of 19.8% per annum over the next five years, which results in a net asset value of $149.66 share after contemplating acquisitions.
“The juice continues to be worth the squeeze and adding new positions at this price level is attractive,” the analysts wrote, while boosting their target price on Stantec (TSX:STN) stock to $93 per share, from $86 previously, and maintaining a ‘Buy’ rating.
“Our rating on STN is predicated on six key themes which are a strong management team in the middle innings of a strategy turnaround; significant exposure to a US stimulus bill; actual EPS growth likely exceeds what is embedded within our estimates; the stock is inexpensive compared to peers with similar end markets; a well-balanced capital allocation policy and a great way to gain leverage to ESG (environment-social-governance) trends.”
The Stifel analysts believe future returns for Stantec (TSX:STN) investors should be healthy and the stock should continue to be a core holding, but matching the share price performance similar to prior years will be a “tall task.”
Over the past five years, Stantec (TSX:STN) stock is up 148% versus the S&P 500 at +57% and S&P/TSX Composite at +25%.
Shares of Stantec edged 0.4% higher to $81.66 in late afternoon trading on Monday.
Contact Sean at sean@proactiveinvestors.com