Sterling Infrastructure, Inc. (STRL Quick QuoteSTRL - Free Report) has rebounded sharply following its fourth-quarter 2024 earnings results, gaining 9.3% despite a challenging macroeconomic backdrop. Year to date, the stock has plunged 24.8%, but its recent surge reflects investor confidence in the company’s financial resilience. This performance is particularly noteworthy amid ongoing market volatility, driven by trade policy uncertainties, inflationary pressures, and shifting consumer sentiment.

STRL’s performance stands out against the broader market. While the Zacks Engineering - R and D Services industry declined 0.1%, Sterling posted solid gains. Additionally, the stock outperformed the Zacks Construction sector (down 3.7%) and the Zacks S&P 500 Composite (down 6%) during the same period.

Compared to its peers, Sterling, a leading infrastructure service provider, has also delivered stronger returns. While Dycom Industries, Inc. (DY Quick QuoteDY - Free Report) fell 8% and Comfort Systems USA, Inc. (FIX Quick QuoteFIX - Free Report) declined 2.8%, Sterling’s performance remained robust. Even Construction Partners, Inc. (ROAD Quick QuoteROAD - Free Report) , which gained 9.1%, only slightly outpaced STRL’s recent rally.

Sterling wrapped up 2024 on a strong note, reporting a 37% year-over-year increase in adjusted earnings per share (EPS) and a 7% rise in revenues. Although revenues slightly missed guidance, the company exceeded expectations in key profitability metrics, demonstrating a strategic focus on margin expansion. Fourth-quarter results were especially impressive, with adjusted EPS rising 13% year over year to $1.46 and operating income increasing 12% on a 3% revenue growth. Notably, gross margins expanded 250 basis points (bps) to 21.4%, reinforcing the company’s pivot toward higher-margin service offerings.

Sterling’s Post Q4 Earnings Share Performance

Image Source: Zacks Investment Research

However, despite strong performance, Sterling faces several challenges. Revenues for the fourth quarter were slightly below expectations. While margins and backlog have remained robust, delays in award timing affected reported backlog figures. The company noted that had certain contracts been awarded in December rather than January, the transportation backlog would have been up 5% instead of down 20% year over year. Additionally, the ongoing affordability challenge in the residential housing market continues to affect demand, particularly in high-growth areas like Dallas/Fort Worth.

On the macroeconomic front, while there is significant demand for semiconductor fabrication and data centers, the speed of execution for some megaprojects has been slower than anticipated. The Chips Act and other onshoring incentives are expected to drive long-term growth, but the timing remains uncertain.

With its strong fourth-quarter performance and strategic focus on profitability, could STRL have even more upside ahead? Investors will be closely watching whether the stock can sustain its momentum in the coming quarters.

Decoding Sterling’s Tailwinds

Strong Growth in E-Infrastructure and Data Centers: The E-Infrastructure business, the largest and most profitable segment, accounting for 44% of total revenues in 2024, remains the company’s crown jewel, with significant expansion in large-scale mission-critical projects. Data centers, in particular, have been the primary growth driver, contributing to a 27% increase in E-Infrastructure backlog in 2024. Sterling’s expertise in delivering projects ahead of schedule and its ability to secure multi-phase contracts has ensured continued strong demand.

Focus on High-Margin Services: Sterling’s shift toward higher-margin services has proven effective, particularly within the transportation solutions segment. While overall revenues in transportation solutions remained flat in the fourth quarter due to strategic shifts away from low-margin work in Texas, operating margins have improved. The company’s ability to secure long-term, well-funded projects insulated it from concerns about federal infrastructure spending cuts. The fourth quarter saw gross profit margins exceed 21%, with full-year margins reaching 20.1%, exceeding the company’s previously set targets. The combination of improved project selection and disciplined cost management has driven Sterling’s profitability higher, even as overall revenue growth remained in the mid-single digits.

Robust Transportation Infrastructure Spending: The transportation sector provided another strong tailwind for Sterling, with 2024 marking the second full year of increased federal infrastructure spending under the Infrastructure Investment and Jobs Act (IIJA). The company successfully secured multiple large projects in key markets, such as the Rocky Mountain region and Arizona, driving a 24% increase in full-year transportation revenue, which accounted for 37% of total revenues.

Although IIJA-related spending has started to plateau after an initial ramp-up, Sterling has built over two years’ worth of backlog in its transportation business, providing visibility into future growth. The company expects continued bid activity and project wins in 2025, with a particular focus on its core Rocky Mountain and Arizona markets.

Despite concerns about potential budget cuts or changes in federal infrastructure funding, Sterling has not seen any impact on its awarded projects. Most state and federal transportation projects are already funded and moving forward as planned. This stability in government infrastructure spending ensures a steady stream of work for Sterling’s transportation business.

Backlog and Future Revenue Pipeline: Sterling's backlog represents a strong pipeline of future revenue, with a backlog of $1.69 billion and an additional $138 million in unsigned awards as of the end of 2024. Notably, the backlog does not include approximately three-fourths of a billion dollars in future-phase work, ensuring continued revenue generation in the years ahead.

Sterling’s Upward Estimate Revisions Signal Strength

Analysts are growing increasingly optimistic about Sterling’s earnings potential. Over the past 30 days, the Zacks Consensus Estimate for STRL’s 2025 EPS has risen from $6.45 to $7.35, reflecting a positive shift in sentiment.

Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
 

Image Source: Zacks Investment Research

The company is poised for robust earnings growth, with projections indicating a 20.5% jump in 2025, followed by an 11.8% increase in 2026. Meanwhile, revenues are expected to remain tepid at $2.03 billion, with forecasts suggesting a 4.1% year-over-year decline in 2025 but an 8.4% rise in 2026, reinforcing Sterling’s focus on margin expansion.

Image Source: Zacks Investment Research

A Look at Sterling Stock Valuation

From a valuation standpoint, the company is currently trading at a discount relative to its industry but premium to historical metrics, with its forward 12-month price-to-earnings (P/E) ratio sitting above its five-year average.

Image Source: Zacks Investment Research

Right Time to Buy STRL Stock to Your Portfolio?

Sterling is well-positioned for strong growth, making now an ideal time to buy. Despite a year-to-date decline, its sharp post-earnings rebound signals investor confidence. The company’s strategic focus on high-margin services, booming E-Infrastructure business, and solid federal infrastructure funding ensure long-term stability.

With a robust backlog, improving margins, and a projected 20.5% EPS growth in 2025, Sterling’s outlook remains strong. Trading at a discount to its industry and backed by upward earnings revisions, STRL presents a compelling buying opportunity before further gains materialize. Sterling currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.