Orion Group Holdings, Inc. ORN has gained 23.4% in the past three months, outperforming the Zacks Building Products - Heavy Construction industry, the Zacks Construction sector and the S&P 500 Index. The detailed price performance is shown in the chart below.

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This specialty construction company benefits from increasing market demand for its specialty marine and concrete services, thanks to government and private sector funding. Moreover, strong relationships with its key contractors boost contract wins, thus fostering top-line growth prospects. The company’s focus on reducing its debt levels and expanding its margins through operational excellence is encouraging.

The Zacks Consensus Estimate of the company’s 2025 earnings per share (EPS) has remained unchanged at 28 cents over the past 60 days. However, the estimated value indicates 185% year-over-year growth. Furthermore, the earnings estimates for the upcoming fourth quarter of 2024 also indicate 125% year-over-year growth. The growth trend signifies bullish analysts’ sentiments, robust fundamentals and the prospects of an outperformance in the near term.

However, the tailwinds outlined above are somewhat offset by certain headwinds faced by the company. Headwinds in the form of increased costs and expenses against the backdrop of persisting inflation are restricting bottom-line growth to some extent.

Let us discuss the factors why investors must retain this Zacks Rank #3 (Hold) stock for now.

Factors Ensuring Orion’s Upward Momentum

Robust Market Demand: Orion operates through two reportable segments, Marine and Concrete. With the increased government spending for public construction and maintenance projects, along with improvements in private sector spending surrounding the optimism about interest cuts, the company is gaining confidence about its services’ demand trend. This uptrend is visible from its contract revenue growth over the first nine months of 2024.

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During the said time frame, contract revenues increased year over year to $579.5 million from $510.2 million. The major driver of this uptick was the increase in marine segment revenues related to the Pearl Harbor drydock project. For 2024, the company expects revenues to range between $850 million and $900 million, significantly up from $711.8 million reported in 2023.

Notable Contract Wins: By maintaining healthy relationships with its key contractors and enhancing its service delivery initiatives, Orion has been gaining robust contract wins. As of Sept. 30, 2024, the company had been working on 14 active pursuits, receiving $116 million in new contract awards after the third quarter end.

Recent contract wins include a $30.6 million subcontract to Skanska, USA, to construct a temporary trestle for the Portage Bay Bridge project for the Washington State Department of Transportation; an $8.5 million contract for the port of Houston's Turning Basin, North Wharf, 16 bulkhead repairs; and an $18.2 million subcontract to Harvey Builders for the Ritz Carlton residences in The Woodlands, TX. With a diversified portfolio of projects under its two reportable segments, Orion is well-positioned to accelerate revenue growth through 2025 and beyond.

Declining Debt Levels: The company is efficiently using its free cash to reduce its debt levels and deliver operational excellence. The improving leverage from the increasing top line and various cost-favoring initiatives are aiding its margins to some extent, given the underlying macro risks lingering in the economy.

In the third quarter of 2024, the long-term debt (net of debt issuance costs) reduced to $23.3 million from $23.7 million as of Dec. 31, 2023. Notably, thanks to operational excellence and continuous efforts to improve revenue growth, ORN’s adjusted EBITDA margin expanded to 5.4% in the first nine months of 2024 against the 0.2% decline reported in the year-ago period.

What’s Restricting ORN Stock’s Growth?

Although improving leverage from increasing contract revenues and efforts to improve operational excellence are notable tailwinds, the persisting inflationary scenario is somewhat hindering the prospects of further growth. The momentum of the bottom line’s growth has been challenged by the increasing costs and expenses faced by Orion for some time now.

During the first nine months of 2024, selling, general and administrative expenses increased 16.7% year over year to $61 million from $52.3 million. The uptick was attributable to an increase in IT, compensation, business development spending and higher legal costs related to pursuing project-related claims.

Key Picks

Here are some better-ranked stocks from the same sector.

MasTec, Inc. MTZ presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

MTZ delivered a trailing four-quarter earnings surprise of 40.2%, on average. The stock has surged 127.9% in the past year. The Zacks Consensus Estimate for MTZ’s 2025 sales and earnings per share (EPS) indicates an increase of 8.8% and 43.9%, respectively, from a year ago.

Weyerhaeuser Company WY currently sports a Zacks Rank of 1. WY delivered a trailing four-quarter earnings surprise of 41.6%, on average. The stock has lost 7.5% in the past year.

The consensus estimate for WY’s 2025 sales and EPS indicates an increase of 8% and 71%, respectively, from a year ago.

Acuity Brands, Inc. AYI currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 3.7%, on average. Shares of AYI have gained 48.1% in the past year.

The Zacks Consensus Estimate for AYI’s fiscal 2025 sales and EPS implies an increase of 14.7% and 8.4%, respectively, from the prior-year levels.

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