Real Asset North American Construction Group Bags Major Project
With inflation on the rise and questions about what to do next in the air, it's time once again to turn towards real assets like North American Construction Group(NYSE:NOA). Real assets include things like commodities, real estate, and infrastructure. These assets have several things in common including intrinsic value, deep moats, the protections of government regulations, and a peg to the dollar that provide a hedge against inflation. While mainstream corporations are struggling to keep up with inflation real assets won't be, at least not as much anyway, making them an attractive portfolio diversifier in times of rising inflation. Considering the pace that inflation is currently rising and the uncertainty of the outlook we think it more than prudent to have this kind of protection.
Building Value With North American Construction Group
North American Construction Group offers Mining and heavy construction services to the resources and industrial segments of North America. The company, along with partners Acciona and Shikun & Benui, was just awarded a large flood mitigation project in the continental United States. the $2.75 billion dollar project includes the construction, operations, and maintenance of a 30-mile river diversion channel around the greater Fargo metropolitan area. This project will ensure many decades of revenue and income for North American Construction Group, the initial contract includes 29 years of maintenance and operations and could be extended at a later date.
North American Construction Group expects its share of the projected revenue will be about $600 million Canadian over the term of the contract, which is equal to about one year's revenue in the pre-pandemic time frame. Once completed the project will protect more than 235,000 people from catastrophic flooding. The deal is expected to close in the second half of the year and is not the only bullish news the company has reported recently.
North American Construction Group announced it would acquire privately-held DGI Trading for approximately $23.50 million. DGI Trading is a component supplier based in New South Wales, Australia delivering production-critical components for the mining industry through a network of suppliers. The deal is expected to be accretive to revenue as well as provide internal synergies and will close early next month.
North American Construction Group Revenue Is Rebounding
North American Construction Group did not have a great pandemic. The shutdown of activity in the infrastructure industry cut deeply into revenue but the rebound is well underway. The second quarter of 2020 was hit the worst with revenue down 60% making the coming quarter a fairly easy comp. That said, even with some expected sequential slowing that we think underestimates the business acceleration, the analysts are looking for revenue to rebound greater than 100% from last year and we think it may be closer to 150%.
The analysts are bullish on this stock and driving it higher. There were six major price target increases in the wake of the last earnings report that has the consensus in the range of $20 or about 25% upside to recent price action. Looking at the chart, the market likes what it has been hearing about this company. Add to that an incredibly safe and growing distribution and we think this stock could easily hit $20 in the near term and will likely go much higher over the long term.
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