Construction conglomerate Argan (AGX) has seen robust top-line growth of over 60% in the most recent quarter, driven by strong demand and heightened construction activity in its Power Services segment. With a backlog exceeding $1 billion, this growth trajectory shows promising potential for sustained momentum. Additionally, the company is well-positioned to benefit from the surging energy demand spurred by the rise of data centers, the onshoring of semiconductor and battery production, and the global expansion of electric vehicle infrastructure.
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Further, the company’s financial strength, demonstrated by zero debt and a cash reserve of nearly $500 million, positions it well for potential strategic acquisitions that could accelerate growth into the future. The stock trades at a healthy premium, likely reflecting its promising growth prospects relative to industry peers, making it an appealing option for income- and growth-focused investors willing to pay up for quality.
Argan Offers a Robust Range of Services
Argan provides a range of services across power generation, industrial, and telecom sectors through its various subsidiaries. The company’s Power Services segment offers comprehensive solutions in the alternative energy domain, including engineering, procurement, construction, and commissioning services for large-scale projects. These services extend to biomass plants, wind farms, and solar fields. This segment also manages projects with a substantial power-generating capacity of approximately 18 gigawatts.
The company’s Industrial Services segment delivers industrial construction, field services, and vessel fabrication services, focused mainly on the southeast region of the United States. This segment’s client industries include fertilizer, engineering, construction, and forest products.
Meanwhile, Argan’s Telecom Services segment offers a variety of services, including directional boring, excavation, aerial cabling, and electric line installation for power and communication networks. It serves electricity cooperatives, government agencies, municipalities, contractors, and federal facilities in the mid-Atlantic U.S.
Analysis of Argan’s Recent Financial Results
The company experienced significant growth in the second quarter of fiscal 2025, with a reported revenue of $227.0 million, reflecting impressive year-over-year growth of 60.6% and exceeding analyst estimates of $183.55 million. Net income rose to $18.2 million, marking an increase from $12.8 million recorded in the same quarter the previous year. The gross profit was $31.1 million, with a gross margin of 13.7% compared to $23.7 million and 16.8% in the last year. At the same time, EBITDA increased to $24.8 million from the previous year’s $17.9 million. This helped to drive earnings per share (EPS) growth, which came in at $1.31 per share, an increase from the previous year’s $0.94.
The company has announced a 25% increase in the quarterly cash dividend, taking it from $0.30 to $0.375 per common share. The boosted dividend will be payable on October 31, 2024, to shareholders of record as of October 23, 2024.
As of the quarter’s end, cash and investments were valued at $484.7 million, a rise from $412.4 million as of January 31, 2024. Further, the reported project backlog has grown significantly to $1.035 billion, a $278 million rise from the previous quarter.
What Is the Price Target for AGX Stock?
The stock has been on an upward trend, climbing up over 164% in the past year. It trades at the high end of the 52-week price range of $39.74 to $122.69 and demonstrates strong positive price momentum, trading above all major moving averages. It appears to be richly valued on a relative basis, with a P/S ratio of 2.44x coming in at roughly 4x the Engineering & Construction industry average of 0.63x.
While Wall Street thinly follows the company, based on the most recent analyst recommendation, Argan is rated a Moderate Buy. The average price target for AGX is $85.00, which represents a decline of 34.25% from current levels. However, considering that this target was set over a month ago and the stock has gained more than 42% since then, I assume a revised price target may be forthcoming.
Final Analysis on AGX
Argan has seen impressive revenue growth and boasts a promising backlog, which suggests a continuation of that trend. The company is well-positioned to benefit from the soaring energy demands from the rise of data centers and the global expansion of electric vehicle infrastructure. It presents a solid investment option for investors seeking income and growth.
