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NEW YORK, Dec 7 (Reuters) - Optimism about President-elect Donald Trump's U.S. economic agenda has sent shares of construction and engineering companies soaring, but the stocks may be vulnerable if benefits from infrastructure spending or other policies fall short.
The gains of 20 percent or more for companies such as Granite Construction Inc and AECOM reflect the exuberance that has swept through the industrial sector since the Nov. 8 election.
Some of these companies are potentially in a sweet spot as Trump's victory ripples through Wall Street.
The companies could benefit significantly from a massive economic stimulus package that includes infrastructure spending, while expected domestic corporate tax cuts stand to give a big boost to their profitability.
Expectations of an easier regulatory climate could speed up projects. Many of the companies also operate predominantly in the United States, so a stronger dollar would not create an earnings obstacle.
"There's a lot of unbridled optimism around infrastructure and lower tax rates that are driving these stocks," said analyst Sameer Rathod of Macquarie Research in San Francisco.
But Rathod added: "Our sense is the market is pricing in a lot, so we think there's probably more room to disappoint."
The S&P 500 industrial sector has risen about 8 percent since the presidential election, compared with a 3.5 percent gain for the broader S&P 500.
In the wake of last month's vote, more than $4.5 billion flowed into industrial mutual funds and exchange-traded funds, according to data from fund-tracking service Lipper.
The S&P 1500 Construction and Engineering index has gained 21 percent since Nov. 8. On Wednesday, it touched its highest level since April 2014.
In an example of the bets placed on the industry, assets for the Powershares Dynamic Building & Construction ETF more than doubled in November to nearly $200 million, with $105 million flowing in since Trump's win, according to Lipper.
Among the biggest share gainers, AECOM has soared 38 percent, Sterling Construction has climbed 36 percent, and Aegion Corp has increased 27 percent.
A group of more than 20 engineering and construction companies tracked by D.A. Davidson & Co is trading at about 19 times earnings estimates for 2017. That compares with a historical average of about 15 or 16 times for the stocks, said John Rogers, D.A. Davidson's head of institutional equity research.
While the market assumes more building is likely to go on within the United States, "I don't think all companies are going to participate or benefit equally," Rogers said.
Investors will be watching how fast Trump can implement his proposals once he gets into office on Jan. 20, including whether he can come through with his vow to push through $1 trillion in infrastructure spending.
Even if he does, however, Westwood Holdings Group Vice President Scott Lawson, who analyzes the industrials sector, is uncertain about how much new spending on infrastructure projects would boost industry profits.
Without "that strong move in earnings power," Lawson said, "then the valuation is high relative to history." (Reporting by Lewis Krauskopf; Editing by Rodrigo Campos and Lisa Von Ahn)