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Why Stantec Stock Jumped Double Digits This Week

By Howard Smith – Oct 22, 2021 at 5:03PM

Key Points

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Stantec's big acquisition announcement shot its stock to all-time highs.

What happened

Global design, engineering, and project management company Stantec (STN 0.80%) was already having a solid year before its stock hit new, all-time highs this week. The recent catalyst was the announcement of an acquisition that will significantly grow the company's North American consulting business for environmental services. That news drove the stock up 15% before shares pared back some of those gains. As of 2:45 p.m. EDT Friday, shares are still about 12% higher for the week. 

So what

Stantec is purchasing the North American and Asia-Pacific engineering and consulting assets from professional infrastructure and environmental services company, Cardno Limited. The deal is valued at approximately $500 million, and will significantly grow Stantec's environmental service business in the U.S. and nearly double the company's presence in Australia. 

Environmental consultant with white hard hat in marsh.

Image source: Getty Images.

Now what

Stantec was already having a good year, with revenue growing nearly 20% year over year in the company's second quarter as the world emerges from the pandemic. The results for that fiscal period ended June 30, 2021 prompted the company to raise earnings-per-share (EPS) guidance for the year. 

The addition of the Cardno assets will boost the company's business in the U.S. at a time when a federal infrastructure package is getting closer to a vote in Congress, which is most likely why investors pushed Stantec shares to record levels. Stantec specifically pointed to areas of the proposed bipartisan plan, including transportation and power infrastructure, water, and environmental remediation, as areas from which it could gain additional business. The company said in a presentation the additional Cardno business will grow its U.S. environmental services business by more than 60%. 

Investors seem to be thinking that potential added catalyst could continue to push Stantec shares higher. With the outcome of any political proposal unknown, that alone is not a good reason to make a long-term investment. But with its business already on the mend, and prospects looking strong even without added stimulus, growing the company with new assets makes a good reason for investors interested in the sector to do more research.

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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