Backlog Growth for Construction Partners Confirms Our Thinking on Four Holdings

*Construction Partners dials back its September quarter expectations due to multiple hurricanes

*Continued backlog growth at Construction Partners supports double-digit forward revenue

*Here’s our game plan for our construction-related portfolio holdings

Because of the impact of Hurricanes Helene and Milton, we’ve been expecting some turbulence with our holdings in construction-related holdings, namely United Rentals URI, Vulcan Materials VMC, Builders FirstSource BLDR and, to a lesser extent, Waste Management WM.

Our thinking has been that those hurricanes would be a headwind late in the September quarter and the start of the current one for their construction activity. However, the eventual rebuilding effort in the ensuing quarters would be a tailwind alongside continued infrastructure spending programs and improving housing construction as the Fed continues to deliver additional rate cuts.

Confirming that thinking, on Monday morning, Construction Partners ROAD pre-announced its fiscal 2024 results, which included record quarterly results despite the impact of multiple hurricanes. While a record quarter, Construction Partners revised its 2024 EBITDA into a tighter range of $219 million to $222 million from $219 million to $228 million, but its project backlog exiting September stood at $1.95 billion, up from $1.86 billion at the end of June and $1.60 billion as of September 2023. It’s that increase in backlog that speaks to some of the reasons why we continue to see rising revenue and EPS at United Rentals and Vulcan Materials in the coming quarters.

We are also seeing ROAD shares move higher because of the preliminary 2025 guidance offered by the management team, which includes the benefits of Monday's announced acquisition of Lone Star Paving. That business and its $660 million in backlog existing September is expected to start contributing to Construction Partners in its January quarter and deliver $530 million in annualized revenue. Given the timing of the transaction, this means it is likely contributing close to $400 million in revenue at Construction Partners during its fiscal 2025. Backing that out of Construction’s preliminary 2025 revenue forecast of $2.42 billion to $2.52 billion translates into the existing business growing 10% to 15%.

That core figure, which is supported by Construction’s backlog, gives credence to our medium- to longer-term thinking for our construction holdings. Should we see these shares trade-off in response to quarterly results or guidance that fall short of market expectations because of Helene, Milton and other recent hurricane, we would view it as an opportunity. Should the shares of BLDR, URI, VMC, or WM “come to us” following their September quarter results, we have room to add to our holdings.

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At the time of publication, TheStreet Pro Portfolio was long URI, VMC, BLDR and WM.