The globe is getting an upgrade. Nations around the world have pumped billions of dollars into their economies over the past two years to build and repair roads, bridges, power grids, water systems, and oil-and-gas pipelines.
And that's only the beginning. CIBC World Markets expects nations to spend about $30 trillion on infrastructure between now and 2030. Governments jump-started the spree with stimulus packages crafted in reaction to the 2008 financial crisis, and the money from those programs continues to trickle down to companies involved in construction.
We found four companies likely to capture significant amounts of government largess aimed at building and repairing infrastructure. All are leaders in areas that will need the most work in coming years, such as the power grid and water-filtration systems.
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Fluor (symbol FLR), a powerhouse in energy infrastructure, is poised to reap more contracts. Broadpoint AmTech analyst Will Gabrielski believes orders for Fluor's engineering services will pick up in early summer. Moreover, the power segment, which accounted for only 6% of Fluor's $22 billion in 2009 revenues, should thrive as the U.S. replaces aging coal plants with gas-fired and nuclear power plants. At $46, the stock trades for an attractive 15 times the $2.98 per share that analysts expect Fluor to earn in 2010 (all prices are as of the May 7 close). Gabrielski sees shares hitting $62 in 12 months.
The global power grid has seen better days. U.S. utilities alone are expected to spend $85 billion over the next 20 years to improve the grid's efficiency. Power-equipment maker ABB (ABB) is the leading producer of systems that help utilities save money by reducing the amount of energy lost between power plants and end-users. The power-transmission business accounted for more than half of ABB's $31 billion in sales in 2009. At $17, ABB's American depositary receipts trade at 16 times estimated 2010 earnings of $1.08 per ADR. That is below ABB's average price-earnings ratio of 19 over the past five years.
Smart metering is critical to a more efficient power grid. Itron (ITRI), a leading maker of meters that measure energy usage in real time, should benefit from the U.S. stimulus package, which provided $4.5 billion in grants for investment in a smart grid. Lazard Capital Markets analyst Sanjay Shrestha thinks Itron, based in Liberty Lake, Wash., is well positioned to win a significant share of those expenditures as utilities replace their meters over the next 18 months. The stock, at $72, trades for 22 times the $3.25 per share analysts expect the company to earn this year. Shrestha, who has a "buy" recommendation on the stock, believes it will reach $90 in 12 months.
Nalco Holding (NLC) is the big fish in the clean-water business. The Naperville, Ill., firm commands 18% of the $6.5-billion market, more than any other player. Canaccord Adams analyst John Quealy expects strong sales in Asia to help Nalco generate 4% revenue growth in 2010. The stock, at $23, trades at 17 times estimated 2010 earnings of $1.39 per share. Quealy's 12-month price target: $33.
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