Stantec's Diversified Business Model Drives Consistent Performance
Stantec Inc. (STN) is a global leader in sustainable design and engineering, providing professional services in the infrastructure, buildings, energy, and environmental sectors. With a rich history spanning over 65 years, the company has carved out a reputation for delivering innovative solutions that address the evolving needs of its clients across North America, Europe, and the Asia-Pacific region.
Stantec's diverse business model has been a key driver of its consistent financial performance over the years. The company operates through four main business segments: Infrastructure, Buildings, Energy & Resources, and Environmental Services. This diversification not only helps mitigate risks associated with any single market or geography but also allows Stantec to capitalize on growth opportunities across a wide range of end markets.
Stantec was established in 1954 as a one-person engineering firm in Edmonton, Alberta, Canada. Over the decades, the company has grown significantly through a combination of organic expansion and strategic acquisitions. The company's focus on providing professional services in sustainable design and engineering has allowed it to develop expertise across various sectors, including infrastructure, buildings, energy, and environmental services.
Throughout its history, Stantec has demonstrated a commitment to innovation and adapting to changing market needs. This approach has enabled the company to expand its service offerings and geographical presence, evolving from a regional Canadian firm to a global leader in its field. The company's growth strategy has included entering new markets and expanding its capabilities through carefully selected acquisitions, allowing it to broaden its expertise and client base.
Stantec's expansion into international markets has been a key aspect of its growth strategy. The company has established a significant presence in the United States, which now represents a major portion of its business. Additionally, Stantec has expanded its operations to Europe, the Middle East, and the Asia-Pacific region, allowing it to serve a diverse global client base and capitalize on infrastructure and development opportunities worldwide.
In recent years, Stantec has placed a strong emphasis on sustainability and environmental stewardship, aligning its business practices with growing global concerns about climate change and environmental impact. This focus has not only positioned the company as a leader in sustainable design and engineering but has also opened up new business opportunities as clients increasingly prioritize environmentally responsible solutions.
In 2024, Stantec delivered record financial results, with net revenues reaching $5.9 billion, an increase of 15.8% compared to the previous year. This strong performance was underpinned by 7.4% organic growth and 7.5% acquisition-driven growth. The company's adjusted EBITDA grew by 18% to $980 million, with an enhanced margin of 16.7%, reflecting a 30-basis-point increase year-over-year.
Stantec's Geographical Diversification Supports Sustained Growth
Stantec's geographical diversification has been a key strength, enabling the company to capitalize on growth opportunities across various regions. In 2024, the company's U.S. operations delivered a strong performance, with net revenues increasing by 13.3%, driven by 8.6% organic growth and 3.3% acquisition growth. The company's Buildings and Water businesses in the U.S. were standout performers, achieving double-digit organic growth.
In Canada, Stantec reported a 14.5% increase in net revenues, with 6% organic growth and 8.5% acquisition growth, primarily driven by the acquisition of Morrison Hershfield. Both the Buildings and Water businesses in Canada experienced double-digit organic growth, while the Infrastructure business delivered solid high-single-digit organic growth.
Stantec's Global segment, which includes operations outside of North America, generated 23.2% growth in net revenues, reflecting 16.3% acquisition growth and 5.8% organic growth. The company's Global Buildings team achieved 20% organic growth, driven by continued work on the Cancer Center in Dubai and the GBP4 billion battery cell manufacturing facility in the U.K. Stantec's industry-leading Water business in the Global segment also saw double-digit organic growth through long-term framework agreements and public sector investment in water infrastructure.
Robust Backlog Supports Future Growth Prospects
Stantec's strong performance is further evidenced by its record backlog, which reached $7.8 billion at the end of 2024, representing a 24.1% increase from the previous year. This backlog growth was driven by 9.7% acquisition-related growth and 8.5% organic growth, highlighting the sustained demand for the company's services.
The company's Water business was a standout performer, with a 24% increase in organic backlog growth. This was primarily driven by the significant ramp-up in the U.K.'s AMP8 (Asset Management Period 8) program, which is approximately 75% larger than the previous AMP7 program. Stantec's leadership position in the U.K. water market, with over 20 different framework agreements secured, positions the company well to capitalize on this substantial growth opportunity.
Stantec's Commitment to Sustainability Solidifies its Industry Leadership
Stantec's commitment to sustainability has been a key differentiator, further solidifying its position as an industry leader. In 2024, the company was recognized by Corporate Knights as one of the World's Most Sustainable Companies, ranking 8th overall and 1st among its industry peers. Additionally, TIME magazine rated Stantec 14th on its list of the World's Most Sustainable Companies, acknowledging the company's authentic commitment to environmental, social, and governance (ESG) practices.
Stantec's focus on sustainability is not only a reflection of its core values but also a strategic advantage in an increasingly environmentally conscious market. As clients and governments around the world prioritize sustainable solutions, Stantec's expertise in areas such as renewable energy, water infrastructure, and green building design positions the company to capitalize on these growing trends.
Robust Financials and Strong Liquidity Support Stantec's Growth Initiatives
Stantec's financial position remains strong, with a net debt-to-adjusted EBITDA ratio of 1.2 times at the end of 2024, well within the company's target range of 1 to 2 times. The company's operating cash flows increased by 16% in 2024 to $603 million, contributing to a free cash flow conversion of greater than one times net income.
For the fiscal year 2024, Stantec reported revenue of $7.5 billion, net income of $362 million, operating cash flow of $603 million, and free cash flow of $504 million. The company's most recent quarter (Q4 2024) saw revenue of $1.5 billion, representing a 19% year-over-year increase, driven by 9.3% organic growth and 7.6% acquisition growth. Net income for Q4 2024 reached $70 million, while profit margins increased by 110 basis points to 55% due to higher project recoveries and strong project execution.
Stantec's strong balance sheet and liquidity profile provide the company with the flexibility to pursue strategic growth initiatives, including selective acquisitions. As of the most recent quarter, Stantec had a debt-to-equity ratio of 0.69, with $229 million in cash and cash equivalents and $461 million in available borrowing capacity under its revolving credit facility. The company's current ratio and quick ratio both stood at 1.29, indicating a healthy short-term liquidity position.
The company's M&A pipeline remains robust, with opportunities in the U.S., which continues to consolidate, as well as globally. Stantec's ability to quickly identify and integrate complementary businesses will be a key driver of its continued expansion and diversification.
Stantec's Outlook: Poised for Continued Growth and Margin Expansion
Looking ahead to 2025, Stantec is well-positioned for another year of exceptional performance. The company expects to achieve net revenue growth of 7% to 10%, driven by continued strength in its core business segments. Stantec's EBITDA margin is forecasted to be in the range of 16.7% to 17.3%, reflecting the company's focus on operational excellence and solid project execution.
The company's adjusted EPS growth for 2025 is expected to be in the range of 16% to 19%, outpacing its net revenue growth. This robust earnings growth outlook underscores Stantec's ability to leverage its diversified business model, strong backlog, and disciplined approach to project delivery to drive shareholder value.
It's worth noting that Stantec's guidance for 2025 does not include any potential future acquisitions, leaving room for additional upside if the company successfully executes on its M&A strategy.
Industry Trends and Market Position
The engineering and design services industry is expected to grow at a compound annual growth rate (CAGR) of 7-9% over the next five years. This growth is driven by several factors, including aging infrastructure, water security concerns, climate change adaptation, and the expansion of advanced manufacturing. Stantec's diverse service offerings and global footprint position the company well to capitalize on these favorable industry trends.
Stantec has not been involved in any major scandals or faced any significant short-seller attacks, which speaks to the company's strong corporate governance and transparency. Additionally, there have been no recent CEO departures, indicating stability in the company's leadership team.
Conclusion
Stantec's impressive financial performance, diversified business model, and commitment to sustainability have solidified its position as a global leader in the design and engineering industry. The company's record backlog, strong liquidity, and strategic growth initiatives, including selective acquisitions, position Stantec for continued success in the years ahead. As clients and governments around the world increasingly prioritize sustainable solutions, Stantec's expertise and industry-leading reputation make it well-equipped to capitalize on these emerging trends and deliver long-term value for its shareholders.
With a robust outlook for 2025, including projected net revenue growth of 7-10% and adjusted EPS growth of 16-19%, Stantec is poised to continue its trajectory of sustainable growth and value creation. The company's focus on operational excellence, combined with its strong market position and favorable industry trends, provides a solid foundation for future success in the dynamic and evolving engineering and design services sector.