Building the Data Center Infrastructure for the AI era is Huge. Sterling Construction (STRL) can Also Benefit.

In the US, construction stocks continue to perform quite solidly. Sterling Construction (STRL), which operates under the name Sterling Infrastructure, is one of the best relative strength stocks. The company operates primarily in the construction industry in the United States and focuses on three main business segments: heavy construction, specialty services and residential projects. Key growth drivers for Sterling include the introduction of new technologies, expansion of service offerings and strategic acquisitions to enhance capabilities and market reach. The construction industry in which Sterling operates is experiencing trends towards sustainability, increased digitalization and the integration of advanced technologies such as AI and machine learning to improve efficiency and project outcomes.

Strong growth in the data center market
The company's largest and highest-margin segment is the e-infrastructure segment. Here, Sterling is dedicated to providing site development services to major users in the e-commerce distribution center, data center, manufacturing, warehousing and power generation sectors. The order backlog in the e-infrastructure segment rose by 35% at the end of the year. The data center market continued to be the largest contributor to orders in the past quarter and remains very strong as customers look to rapidly build the capacity required for AI technology.

Acquisition in the Building Solutions segment
In the Building Solutions segment, the company acquired the Professional Plumbers Group (PPG) in 2023, which added the plumbing business to Sterling's portfolio. PPG is seen as a complement to Sterling's existing services. The company offers excellent growth prospects, which should also have a positive impact on margins. This acquisition is in line with Sterling's strategy to expand its service offering and improve the segment's operating margins.

Three consecutive years of EPS growth of over 40%
Key factors contributing to Sterling's record profit and revenue growth in 2023 included a favorable volume-price mix, supply chain improvements and good productivity, particularly as major projects were completed in Q4. Operating margins in the E-Infrastructure segment improved significantly due to these factors. In addition, the company's order backlog has increased significantly by +46%, providing high visibility for future revenues and profits. The company had achieved adjusted EPS growth of 40% and revenue growth of 11% in 2023. This was the third consecutive year in which the company achieved adjusted EPS growth of 40% or more.

Sterling Construction (ISIN US8592411016): The stock is no longer a bargain with a forward P/E 2024 ratio of 21. However, the pivotal price line has been stable recently. The latest figures are expected on May 6. Speculative traders are already positioning themselves in advance.

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