Stantec Inc.

STN : TSX : C$70.12
STN : NYSE
BUY 
Target: C$78.00

COMPANY DESCRIPTION:
Focused on fee-for-service work, Edmonton-based
Stantec plans, designs, and manages projects in the
North American infrastructure and facilities sector. The
company’s business model incorporates diversity across
regions, end markets, and all phases of the infrastructure
life cycle to manage risk and deliver growth. 2013
marked Stantec’s 60th consecutive year of profitability.

Sustainability — Infrastructure
SOLID Q2/14 RESULTS; MAINTAIN BUY RATING AND INCREASING TARGET TO

C$78.00 (FROM C$75.00)
Investment recommendation
We are maintaining our BUY rating and increasing our one-year target
price to C$78.00 from C$75.00 following better-than-expected Q2/14
financial results, an increase in our estimates, and as we roll forward
our valuation base by a quarter. We still believe that Stantec’s 5%
targeted organic growth rate for 2014, paired with the strong pick-up in
acquisition activity (closed and announced deals), are supportive of the
company’s long-standing growth targets. In our view, Stantec should
remain a core holding: management has a clear and consistent strategy
and game plan, no lack of opportunities to drive average annual revenue
and earnings growth of ~15% for the foreseeable future, and a long
track record of very disciplined and consistent execution. We also expect
regular annual dividend increases of 10% or more for the foreseeable
future.
Valuation
We rely on our five-year DCF model (10.5% discount rate) to value
Stantec. Our target price equates to a P/E multiple of 20.0 times and an
adjusted EV/EBITDA multiple of 11.4 times our 2015 estimates. Given
the company’s available growth opportunity and consistent ROE (~18%
level), we view these multiples as supportable, although nearer to the
higher end of the historical range. We are comfortable with this given
current overall momentum, where we are in the cycle, and what we feel
are relatively conservative forward estimates.

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