Construction Partners, Inc. ROAD or CPI, has been capturing the attention of investors over the past few months. This civil infrastructure company’s stock rose a whopping 73.1% over the past three months. In fact, on Monday, it touched a new 52-week high of $103.69 and pulled back to end the trading session at $100.14.

In the same time frame, the Zacks Building Products - Miscellaneous industry grew 14.7%, the Zacks Construction sector gained 12.6%, and the S&P 500 rose 9.4%.

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ROAD is benefiting from solid demand trends for private and public work across more than 70 local markets in the six southeast states in which it operates. Furthermore, accretive acquisitions, project pipelines and the ROAD-Map 2027 goals have been driving the company.

What Technical Indicators of ROAD Show?

Technical indicators show that Construction Partners stock has been ceaselessly trading above the 50-day simple moving average (SMA) and 200-day SMA. The 50-day SMA continues to read higher than the 200-day moving average, indicating a bullish trend.

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As ROAD’s stock soars on solid fundamentals, let’s check whether it is a good buy now or if the rally has run its course.

Solid Southeastern Presence Propels Backlog Growth

Construction Partners, which specializes in asphalt paving and road construction, has a strong presence in the southeastern United States. Due to healthy funding programs at the state, local and federal levels throughout the southeastern states, the company witnesses strong demand for public projects. Public investments include a variety of infrastructure projects ranging from highways and bridges to airports, railroads and military bases. The company’s strategic focus on public projects ensures a steady stream of government-backed contracts, providing stability in a competitive industry.

Also, CPI continues to see areas of strength in the private market for manufacturing, corporate site development, large economic development projects and residential. The project backlog at the end of fiscal 2024 amounted to $1.96 billion, up from the year-ago number of $1.60 billion and $1.86 billion at June 30, 2024.

A Bullish Run for Fiscal 2025

Owing to strong industry demand and favorable funding trends, the company raised its fiscal 2025 outlook. For fiscal 2025, CPI now expects revenues in the range of $2.48-$2.58 billion, up from the prior projection of $2.42-$2.52 billion. This indicates an improvement from $1.82 billion reported in fiscal 2024.

Net income is expected to be in the range of $97-$113 million (up from the prior projection of $90-$106 million) compared with $68.9 million in fiscal 2024. CPI now anticipates adjusted EBITDA in the range of $347-$377 million (up from the prior projection of $338-$368 million) compared with $220.6 million in fiscal 2024. Adjusted EBITDA margin is still anticipated to be between 14% and 14.6% compared with $12.1% in fiscal 2024.

Federal Spending & Regional Expansion

ROAD stands to gain significantly from increased federal and state funding for infrastructure projects. The $1.2 trillion Infrastructure Investment and Jobs Act is set to inject substantial capital into transportation projects, including roadways, bridges, and highways, which align perfectly with the company’s expertise.

Moreover, Construction Partners continues to expand its regional footprint through acquisitions and organic growth. Its targeted strategy of acquiring smaller, family-owned companies strengthens its market share while maintaining operational efficiencies. In fiscal 2024, ROAD acquired eight companies in Alabama, Georgia, North Carolina and South Carolina. These buyouts added 11 asphalt plants, a diverse fleet of equipment and vehicles, and skilled construction professionals.

The ROAD-Map 2027 Targets

In October 2023, ROAD disclosed certain targets it expects to achieve by fiscal 2027. The targets include annual revenue growth in the range of 15-20%, with approximately half of the growth being inorganic and the other half being organic, and EBITDA margin expansion in the range of 13-14%.

Construction Partners is uniquely positioned to benefit from both cyclical and structural tailwinds. The ongoing urbanization of the southeastern United States, coupled with the aging infrastructure nationwide, ensures a long runway for growth.

ROAD’s Positive Estimate Movement

Analysts are showing confidence in the stock, as indicated below by recent upward revisions in EPS estimates for fiscal 2025.

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The estimated EPS figure for fiscal 2025 indicates 47.4% year-over-year growth on a 40.4% rise in revenues. The stock also flaunts a Value Score of B.

Should You Choose ROAD Stock?

While ROAD has significant growth potential discussed above, inflationary headwinds with respect to transportation costs, material costs and energy costs have been a pressing concern for the industry as a whole. Also, rising labor costs, dependency on government-funded projects and seasonality are likely to compress margins for ROAD and other industry players like Arcosa, Inc. ACA, Armstrong World Industries, Inc. AWI and Frontdoor, Inc. FTDR.

ROAD stock is currently overvalued compared to the industry, as shown in the chart below.

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Also, the company provides a lower return on equity (ROE), which means it generates less profit than the shareholders' equity invested in the business. Its trailing 12-month ROE is 12.9%, lower than the industry’s 14.8%.

Despite a few headwinds, Construction Partners combines strong fundamentals, a favorable industry backdrop, and a proven growth strategy. With its ability to navigate market challenges and capitalize on infrastructure investments, ROAD represents an attractive buy for investors seeking exposure to the infrastructure sector. Based on the overall discussion and the trends of technical indicators, investors can consider adding this Zacks Rank #2 (Buy) stock to their portfolio for now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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