Should You Buy Sterling Stock After Its Solid Q2 Earnings Beat?

Sterling Infrastructure, Inc. STRL reported second-quarter 2025 results on Aug. 4, with both earnings and revenues exceeding the Zacks Consensus Estimate by 19% and 10.7%, respectively. The company also delivered strong year-over-year growth across key metrics. Adjusted diluted earnings per share came in at $2.69, up 41% year over year, while revenues increased 21% (excluding the impacts of RHB deconsolidation).

The company’s performance benefited from a strong increase in E-Infrastructure Solutions and Transportation Solutions, which offset weakness in the Building Solutions segment. The gross margin expanded 400 basis points to 23%, marking a new high as the business continued to shift toward higher-margin service offerings. Supported by revenue growth and margin expansion, adjusted EBITDA advanced 35% from the prior-year quarter.

STRL Stock Outperforms Peers, Industry & Market

Shares of Sterling have gained 51.4% in the past three months compared with the Zacks Engineering - R and D Services industry’s and the S&P 500’s rallies of 11.3% and 8.8%, respectively. The STRL stock has also outperformed the broader Construction sector's 9.6% rise during the same period. Sterling stock has been on an upward trajectory since reporting its second-quarter 2025 results on Aug. 4, rising 6.6%.

The STRL stock has outperformed some other players, including AECOM ACM, Fluor Corporation FLR and KBR, Inc. KBR. In the past three months, AECOM and Flour have rallied 9.7% and 10.5%, respectively, while KBR has lost 10.5%.

Sterling’s second-quarter results underscored strong execution and momentum. The next step is to look at what may shape the company’s path forward — let us delve deeper.

E-Infrastructure Momentum Gains Strength

Sterling’s E-Infrastructure Solutions segment continued to lead growth in the second quarter, supported by rising demand for large-scale data centers and e-commerce distribution facilities. Revenues in the segment increased 29% year over year, while adjusted operating income grew 57%. Margins expanded by more than 500 basis points to 28%, reflecting improved project execution and a shift toward mission-critical work.

Data center revenues more than doubled in the quarter, and e-commerce backlog also showed meaningful growth. Bookings remained strong, with data centers now accounting for 62% of the segment’s total backlog, while e-commerce distribution backlog skyrocketed nearly 700% year over year.

Moving forward, the company expects E-Infrastructure revenues to rise 18-20% in 2025, with operating profit margins holding in the mid-to-high 20%.

Backlog Expansion Supports Visibility

The company exited the second quarter with a strong backlog position, providing clear visibility into future revenue streams. Total backlog reached $2 billion, up 24% from the prior year, while E-Infrastructure backlog grew 44% to $1.2 billion. In addition, Sterling maintained approximately $750 million in future-phase opportunities tied to existing projects, bringing combined visibility close to $2 billion for E-Infrastructure.

This expanded pipeline strengthens confidence in the company’s multi-year growth prospects, with management citing increasing customer demand and sustained capital investment plans.

Transportation Solutions Drives Profitability

Sterling’s Transportation Solutions segment is positioned for steady growth, supported by a healthy backlog and favorable market dynamics. Backlog for the segment stood at $715 million at the end of the quarter, up 5% year over year, though sequentially lower due to strong revenue burn and seasonal award timing. The company is approaching the final year of the current federal funding cycle, which runs through September 2026, providing more than two years of visibility and supporting strong bid activity in core Rocky Mountain and Arizona markets.

The planned downsizing of low-bid heavy highway operations in Texas is progressing as intended, resulting in some moderation of revenues and backlog but creating a more profitable mix. Looking ahead, Sterling expects Transportation Solutions revenue growth in the low-to-mid teens on an adjusted basis for 2025, with operating profit margins improving into the low teens from the 9.6% registered in 2024.

Expansion Through Acquisition

Sterling continues to advance its strategy of strengthening the E-Infrastructure platform through targeted acquisitions. The pending $505-million purchase of CEC Facilities Group will add mission-critical electrical and mechanical services to the portfolio, enhancing the company’s ability to deliver end-to-end solutions.

The company expects the integration to create cross-selling opportunities, accelerate project timelines and expand Sterling’s geographic footprint. Once closed, the acquisition is set to deepen customer relationships and support long-term growth across high-demand infrastructure markets.

Upward Estimate Revisions for Sterling

Wall Street analysts remain optimistic about STRL’s earnings potential. Over the past 30 days, earnings estimates for 2025 have been revised upward to $8.90 per share from $8.61. The estimate indicates growth of 45.9% from that reported a year ago. 
 

Conversely, AECOM and KBR’s earnings in the current year are likely to witness year-over-year increases of 15.9% and 13.2%, respectively, while Fluor’s earnings are expected to decline 12.5%.

A Look at Sterling Stock’s Valuation

From a valuation standpoint, the company is currently trading at a premium relative to its industry and historical metrics, with its forward 12-month price-to-earnings (P/E) ratio sitting above its five-year average.

Moreover, STRL is priced higher than some of its industry peers, such as AECOM, Fluor and KBR, which trade at 21X, 18.95X and 12.25X, respectively.

Conclusion: Why is STRL Stock a Buy?

Sterling’s second-quarter results highlighted strong execution, margin gains and solid visibility, backed by a growing backlog. Demand in mission-critical data centers and transportation markets, along with the acquisition of CEC Facilities Group, reinforces the company’s positioning for long-term growth. Its disciplined approach to bidding and focus on higher-margin opportunities continue to strengthen profitability and build resilience across market cycles.

Upward earnings estimate revisions for 2025 reflect analyst confidence in Sterling’s outlook. Despite trading at a premium to peers, the stock’s consistent performance, expanding end-market exposure and favorable growth drivers justify this position.

Backed by these factors, Sterling currently has a Zacks Rank #2 (Buy), signaling that the stock remains attractively placed for investors heading into the next phase of 2025. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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