“Roads? Where we’re going, we don’t need … roads.”
— Emmett “Doc” Brown, “Back to the Future.”
At the very end of the first “Back to the Future,” Doc Brown (actor Christopher Lloyd) brings his time-machine DeLorean back from “tomorrow,” and tells of a future where roads are obsolete – which is why his car is now able to fly.
Although the first installment of that trilogy hit the big screen way back in 1985, the “future” of the “Back to the Future” franchise predicted where cars can fly and roads are obsolete still hasn’t arrived.
We don’t have flying cars – but the electric vehicle (EV) revolution is in the offing.
And roads remain essential – a disconcerting reality given that the highway system here in America is crumbling, and has been pretty much since the first “Back to the Future” was playing in U.S. movie houses.
Fortunately, our “reality” is about to get better – thanks to the Biden Administration’s $2.25 trillion infrastructure plan. The White House wants to invest $174 billion to help build a nationwide network of 500,000 EV charging stations by 2030. And it’s outlined a $115 billion ante to bring America’s highways and bridges up to snuff.
As we promised in yesterday’s Total Wealth, the urgently needed highway fix-it plan is handing us a moneymaking opportunity we want to jump on right now.
And the opportunity we have for you today is a firm that bills itself as “America’s Infrastructure Company.”
The company we’re going to talk about right now is Granite Construction Inc. (NYSE:GVA), a Watsonville, California-based engineering firm that is definitely “America’s Infrastructure Specialist.” Granite is involved in all sorts of real-world projects – including roads, highways, bridges, tunnels, mass-transit facilities, airports, power-grid projects, and even water systems.
All of these business segments will see increased spending from the infrastructure bill, but roads and bridges will be among the biggest infrastructure-spending beneficiaries.
The transportation- infrastructure business accounts for about 75% of Granite’s revenue – meaning the company will be among the top beneficiaries.
But recent contract awards illustrate that Granite will compete for business in several other areas that will receive funding once Biden’s plan finally passes. The firm recently landed a deal to build a new railroad yard on 17 acres in the Port of Stockton. Granite is also working on a Columbus, Ohio, project that will reduce the amount of water that spills out of the sewer and storm-water systems and pollutes local creeks and rivers during the flooding seasons there.
The fact is that the COVID-19 pandemic hardly slowed Granite at all.
For 2020, Granite’s revenue rose 3.4% to $3.6 billion. And operating cash flow reached a record $268.5 million.
The upshot: Granite ended the year with a rock-solid balance sheet. Cash and marketable securities jumped 49.6%, and now stands at $639 million. Debt decreased 7% to $338.8 million in the most recent quarter.
That means the company approaches the Biden infrastructure opportunity with a lot of momentum already working in its favor.
And there’s more.
In today’s inflationary environment, Granite has a competitive advantage in that it’s somewhat vertically integrated: It controls its own mining-and-production facilities – meaning it has access to the asphalt, concrete, aggregates, specialty sands, and rock needed for the projects it will be targeting.
That gives it control over raw-material costs. But, just as important, it won’t have to compete against other companies in a bid for these all-important key ingredients.
Three Paths to Profit
Looking forward, the biggest near-term catalyst will come from work on roads and bridges. But its work with utility grids positions it to be a major, longer-term beneficiary of the EV Revolution.
According to current forecasts, earnings could jump nearly 140% from fiscal 2021 to fiscal 2022.
Granite currently trades at about $38. And there are three different target prices – each based on a different projection, but each of them representing a hefty upside from the current “Buy” price.
If Granite benefits from the avalanche of business emanating from the White House’s infrastructure push, you’re looking at a stock that could trade between $55 and $93 within the next year to 18 months. And a discounted-cash-flow (DCF) analysis points to an upside as high as $118.
Given those three scenarios, you’re looking at projected potential gains of 41%, 138%, or 203%.
And that’s a view of “tomorrow” I can really get behind.
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Source: Total Wealth