Private markets within the engineering and construction sector in the U.S. are growing at faster rates off of a much lower base than the public side of the space, which may see a broader softening now without the boost of an economic stimulus package, says Avram Fisher, a Vice President at BMO Capital Markets.
“On the public side, the most obvious assets that are built by the E&C companies are roads and highways, railroads, bridges, mass transits,” he said. “On the private side, it’s nonresidential buildings, including refineries, petrochemical facilities, specialty chemical facilities and then institutional construction of museums, hospitals, government buildings, hotels and schools.”
Fisher has an “outperform” rating on Jacobs Engineering Group Inc. (JEC), which he says has an attractive valuation and offers growth at a reasonable price. He says JEC is trading below its normal historical multiple, because of the company’s federal government exposure, which in his view is a function of headline noise around federal budget risks.
“Jacobs Engineering, they have exposure to the Canadian oil sands in something called SAGD, steam-assisted gravity drainage, which is a more efficient and less invasive method of removing the bitumen from the oil sands,” Fisher said. “They also have relatively new Middle East exposure that’s gaining significant traction in the refining and petrochemical space.”
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