Can Sterling Offset Housing Weakness With Mission-Critical?

Sterling Infrastructure, Inc. STRL has currently shifted its focus toward large-scale mission-critical projects, including data centers, amid a weak housing market. This strategic decision of the company, backed by the current favorable market backdrop concerning public infrastructure demand, is proving incremental for its bottom line and revenue visibility.

The demand for data center-related projects is currently strong in the market thanks to the ongoing surge in Artificial Intelligence applications and the focus on digital transformation initiatives. Sterling highlighted that the mission-critical projects hold the majority of its E-Infrastructure segment’s (51% of first-quarter 2025 revenues) backlog, with data center-related work accounting for more than 65%. Backed by the robust market trends, the E-Infrastructure segment’s backlog grew 27% year over year to $1.2 billion as of the first quarter of 2025, with Sterling finishing the quarter with a total backlog of $2.13 billion.

The company is optimistic that its focal shift toward mission-critical projects is likely to ensure continuous revenue flow in the long term. This diversification of the revenue stream minimizes profitability risks as the current housing market in the United States is dicey. During the first quarter of 2025, STRL witnessed a 19% year-over-year decline in its legacy residential business (under the Building Solutions segment) as homebuyers continue to face affordability challenges because of a still-high mortgage rate and lingering sticky inflation.

Although the residential market is expected to remain uncertain for some time, the robust market trends for mission-critical infrastructure are expected to boost STRL’s revenue visibility and margin expansion prospects.

Competition in Mission-Critical Infrastructure

Firms like Quanta Services, Inc. PWR and MasTec Inc. MTZ offer substantial competition to Sterling in the public infrastructure field, especially across mission-critical infrastructure solutions.

Quanta offers specialty contracting services with operations in the United States, Canada, Australia and other selected international markets. Through its Electric Infrastructure Solutions segment, Quanta indulges in comprehensive services for the electric power, renewable energy, technology and communications markets. As of March 31, 2025, the segment’s 12-month backlog was up 19.6% year over year to $16.37 billion, with the total backlog of $29.7 billion growing 24.8%.

MasTec is an infrastructure construction company engaging in engineering, building, installation, maintenance and upgrade of energy, communication, utility and other infrastructure. Due to the explosion of AI, cloud computing and high-performance data storage, MasTec is witnessing a significant boost in its backlog, with its diversified business model catalyzing the impact. As of March 31, 2025, it had an 18-month backlog of $15.88 billion, up 23.7% year over year and 11% sequentially.

STRL Stock’s Price Performance & Valuation Trend

Shares of this Texas-based infrastructure services provider have surged 71.8% in the past three months, significantly outperforming the Zacks Engineering - R and D Services industry, the broader Zacks Construction sector and the S&P 500 index.

STRL stock is currently trading at a premium compared with the industry peers, with a forward 12-month price-to-earnings (P/E) ratio of 26.6, as evidenced by the chart below. The overvaluation of the stock compared with its industry peers indicates its strong potential in the market, given the favorable trends backing it up.

EPS Trend of Sterling

For 2025 and 2026, STRL’s earnings estimates have remained unchanged over the past 60 days at $8.61 and $9.48 per share, respectively. However, the estimated figures reflect 41.2% and 10.1% year-over-year growth, respectively.

The current uncertainties in the housing market are concerning analysts. However, the favorable year-over-year comparisons indicate that STRL will most likely benefit from its strategic business shift and ensure incremental prospects.

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research