GVA // Purple 7 // Strike Price = {subscribe}
10/y CAGR = 3.4%
1/y CAGR = 48.8%
// WHY BUY
Given a CAGR of 3.4% maybe GVA isn’t the best investment for the long-term, especially since the dividend is today only 1.2% and has been flat at $0.52 for a decade. But when the economy kicks them to the curb and brings their price to strike it is worth taking note. (See 1 year CAGR of 48.8%) Biden set the US on an infrastructure building path with the IIJA. (Like it or not at least ya’ll are getting something tangible for this expense, unlike money printing and bank bailouts.) GVA churn out infrastructure projects and as much as people are trying to bring the Jetson’s to life, we need roads and bridges and airports etc for civilization to function. Their free cash flow is shaky, fluctuating from pos to neg like a battery. 2013 to 2022 FCF: ($0.99) | ($0.01) | $0.58 | ($0.45) | $1.97 | ($0.57) | $0.10 | $3.84 | ($1.59) | ($1.48). WIth management talking about lessons learned about project selection, estimation and execution, it’s now time to get busy. We are late to this party as the price has appreciated nicely since October, but if the market (not company failures) pukes us back to strike, it’s go-time. If you want a nice, boring company in your portfolio. It would also be nice, if they mentioned working on reducing carbon emissions from their construction materials. Although in 2021 they diverted 1MT from landfills by using recycled content in asphalt production. (BTW: Wikipedia says 4-8% of global CO2 emissions come from concrete. We know there is green cement out there but have yet to find an investable one. Let us know if you come across anything interesting.)
// ChatGPT: WHY BUY … ?
Granite Construction Incorporated is a publicly traded company that specializes in infrastructure construction, such as highways, bridges, airports, and other large-scale projects. The company has a strong track record of completing complex projects on time and on budget, which has helped it to win many contracts with government agencies and private clients.
Investors may consider buying shares of Granite Construction Incorporated if they believe in the long-term growth potential of the infrastructure industry, which is likely to benefit from increased government spending on public works projects. Additionally, investors may want to research the company’s financial performance, management team, and competitive position in the industry before making any investment decisions.
// CONCLUSION
GVA targeting annual organic growth in revenue of 6-8% (revenue CAGR of past decade was 3.%). But the operating margin is presently a mere 2%. They are expecting to improve their margins with better selection of projects, more accurate bid estimates and improved product execution. We should all be allowed to live-n-learn but these are some big ifs for us Main St investors. Maybe they have learned their lessons so well that we will never see our Strike Price again for GVA but what if some of those ifs come home to roost? This isn’t a high growth behemoth so all the more reason to #abidethestrike and not overpay and let them prove lessons are learned and then we can give ‘em a new strike if need be.
// CATALYSTS
There news feed of late is a list of Committed and Awarded Projects (CAP) which has created an order backlog // Developing a second home market in Texas (Cali was first) to win more projects in that burgeoning state (recently won 3 highway projects near Houston for $145M in total) // De-risking project portfolio by shifting from complex design-built projects to smaller bid-build projects in effort to raise margins // US Infrastructure (IIJA) investment of ~$1.2T should provide good order flow and revenue growth // With an eye to improve margins, 2021 they opened two new aggregate and asphalt production facilities with better automation to increase capacity and decrease costs
// RISKS
Last few years some large projects had significant losses // They call these their Old Risk Portfolio (ORP); most of these projects are almost complete // The risk is they might have signed up for more ORPs
// NEWS & COMMENTS
Dec 27, 2022
SA // buy: Granite Construction’s Outperformance Can Continue
… the U.S Infrastructure investment and jobs act (IIJA) funding of approximately $1.2 trillion should provide GVA with a good order pipeline for future backlog and revenue growth. Turning to margins, the retention of higher-margin water and mineral businesses should benefit GVA’s margin. In addition, the completion of the ORP projects and a line-up of higher-margin projects in its CAP should also help with margin growth. The company is expected to see strong EPS growth in the coming years, helped by good revenue growth and margin expansion..
// GGI 💬
The margins had better improve, or else >_<
