Work continues on the twinning of Highway 101 near Windsor, N.S., on March 10, 2009.ANDREW VAUGHAN
Grab a shovel, investors. The infrastructure funds are starting to flow.
Aiming to spend the slumping economy out of recession, governments are loosening the purse strings on billions of dollars for road and bridge repairs and other job creation projects. And as that cash gets spent over the next few years, infrastructure stocks could be the big winners, analysts say.
Yesterday, Prime Minister Stephen Harper said 80 per cent of the $22.7-billion earmarked for stimulus spending has been committed.
"Some 3,000 individual projects across the country are now getting under way," he said.
Bidding for U.S. government contracts is also heating up, with highway, rail and aviation projects expected to be first in line for infrastructure cash under the $787-billion (U.S.) American Recovery and Reinvestment Act.
"The sector that will benefit the most and the fastest from recent stimulus infrastructure spending in both Canada and the U.S. is transportation," Blackmont Capital analyst Chris Blake said in a note to clients yesterday.
Canadian companies that stand to benefit most from U.S. transportation-related infrastructure spending, he said, include Stantec Inc. and IBI Income Fund .
Roughly half of Stantec's revenue is generated in the United States, while IBI's U.S. exposure is about 20 per cent, he said. He has "buy" recommendations on both companies, as well as a third infrastructure stock - Genivar Income Fund - that has no U.S. operations.
Infrastructure stocks have already posted strong gains in anticipation of higher revenues and profits, but analysts see further upside. Shares of Stantec, for instance, are up 52 per cent from their March lows, closing yesterday at $28.96, but the average price target of analysts surveyed by Bloomberg is $31.99.
Stantec, which provides planning, engineering, architecture, surveying, environmental and other services, is a "long-term growth story," Maxim Sytchev, an analyst with Genuity Capital Markets, said in a research note.
The stock is trading at a discount both to the overall market and to its historical valuation, and the company's guidance for 2010 is "likely too conservative" because it "does not account for any incremental work from stimulus packages," he wrote.
Among other infrastructure stocks, Mr. Sytchev also has "buy" recommendations on Aecon Group Inc., SNC-Lavalin Group Inc., Churchill Corp. and IBI.
John Heinzl