Will Sterling's Expanding Margins Hold as Data Center Demand Surges?

Sterling Infrastructure, Inc. (STRL) continues to benefit from its growing exposure to mission-critical and large-scale projects, particularly in the data center market. The company’s focus on complex, multi-phase developments has strengthened profitability, supported by higher productivity and operational efficiency. Strong demand across data centers, e-commerce facilities and manufacturing projects continues to drive growth in high-margin end markets.

In the second quarter of 2025, the company reported a 400 basis-point (bps) year-over-year expansion in gross margin to 23.3%, reflecting improved mix and productivity gains. The E-Infrastructure segment, which serves data center and manufacturing customers, delivered a 28% operating margin, up more than 500 bps year over year. Data center revenues more than doubled in the period, now accounting for 62% of the segment’s backlog. E-Infrastructure backlog rose 44% year over year to $1.2 billion, supported by a steady pipeline of large, multi-phase projects.

The company cited roughly 40% profit improvement on projects where site and utility work were completed simultaneously, underscoring efficiency benefits from scale and integration. Combined signed backlog and future phases provide visibility into nearly $2 billion of E-Infrastructure revenues, indicating sustained momentum ahead. For 2025, the company expects E-Infrastructure margins to remain in the mid-to-high 20% range compared with 23.7% in 2024, supported by expanding data center activity and growing project complexity.

Going forward, strong backlog levels, continued bidding activity and rising participation in high-return data center and e-commerce projects are expected to support sustained earnings growth. Multi-year visibility across infrastructure programs and disciplined execution provide a solid base for long-term profitability.

Peer Focus on Expanding Margins

Margin expansion has also been a key focus for infrastructure peers. MasTec, Inc. (MTZ) and EMCOR Group, Inc. (EME) have both demonstrated stronger profitability, supported by operational efficiency and a favorable project mix.

MasTec delivered improved profitability in the second quarter of 2025, supported by margin expansion across its non-pipeline segments. Communications, Power Delivery and Clean Energy & Infrastructure remained key growth drivers, benefiting from rising demand in telecom, grid modernization and renewables. Non-pipeline EBITDA rose 42% year over year to $257 million, with overall margins up 100 bps. Backed by strong project visibility, MasTec expects further margin gains in the second half of 2025.

EMCOR also reported margin gains, reflecting progress in its prefabrication and design-integration strategy. The company has been expanding prefabrication capacity across major construction segments, supported by Virtual Design and Construction and Building Information Modeling to enhance productivity and cost efficiency. In the second quarter of 2025, EMCOR achieved a record operating margin of 9.6%, up 50 bps year over year, and now targets full-year margins between 9% and 9.4% compared with 8.5-9.2% previously. Prefabrication has helped offset labor constraints while providing a more stable margin profile across complex projects.

STRL’s Price Performance, Valuation and Estimates

Shares of this Texas-based infrastructure services provider have surged 31.7% in the past three months, outperforming the Zacks Engineering - R and D Services industry’s decline of 11.3%.

Price Performance

STRL stock is currently trading at a premium compared with its industry peers, with a forward 12-month price-to-earnings (P/E) ratio of 31.07, as shown in the chart below.

P/E (F12M)

For 2025 and 2026, STRL’s earnings estimates have trended upward in the past 60 days to $9.57 and $10.98 per share, respectively. The revised estimated figures indicate 56.9% and 14.7% year-over-year growth, respectively.

The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank 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