Imperial Capital Finds 5 Reasons To Like Construction Partners

Construction Partners Inc (NASDAQ: ROAD), a civil infrastructure company that constructs and maintains roadways across multiple southeastern states, should be bought by investors for five reasons, according to Imperial Capital.

The Analyst

Imperial Capital's Adam Hackel initiated coverage of Construction Partners with an Outperform rating and $16 price target.

The Thesis

The bullish case for Construction Partners, a relatively new company to the public markets, is based on expectations for long-term revenue and earnings growth for the following reasons, Hackel said: 

• A competitive advantage in business structure, including vertically integrated operations, scale and expertise in hot mix asphalt production.
• The potential for strong growth organically and through new M&A deals.
• Favorable industrywide tailwinds, especially within public infrastructure spending, which accounts for 70 percent of total revenue. Population growth of 1 percent annually is expected through 2030 in the southeast region. 
• Operational improvements overseen at the management level to further scale Construction Partners' vertically integrating operations and increase efficiency via standardization of business practices.
• The stock offers investors sustainable, above-average returns on capital compared to peers.

Imperial's $16 price target is based on expectations for the stock to trade at a 10 times multiple on fiscal 2019 TEV/adjusted EBITDA, which is at the midpoint of the 5-15 times range where peers trade. A multiple of 10 times is warranted given ROAD's above-average profitability profile, Hackel said. 

Price Action

Shares of Construction Partners were trading up more than 1 percent at the time of publication Friday at $13.18. 

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