Sterling's Transportation Margins Rebound: A Structural Shift?

Sterling Infrastructure, Inc. STRL delivered meaningful margin expansion in its Transportation Solutions segment in the third quarter of 2025, underscoring a fundamental shift in strategy. The segment is transitioning from a volume-driven model to one centered on disciplined project selection, portfolio optimization and higher-margin technical expertise. Segment revenues increased 10% year over year, while adjusted operating profit rose 40% and adjusted operating margins expanded 335 basis points to 15.6%, reflecting stronger execution and a growing focus on design-build, aviation, rail and alternative-delivery projects. Transportation Solutions also ended the quarter with a backlog of $733 million, up 23% year over year, providing improved visibility for the segment.

Management identified the ongoing wind-down of the company’s low-bid heavy-highway business in Texas as a key structural driver of margin improvement. While the transition is weighing modestly on near-term backlog and revenues, profitability is expected to improve as lower-margin projects roll off, with most of the remaining backlog from this business projected to be completed by the first half of 2026. At the same time, standardized processes, disciplined cost controls and experienced project teams are helping limit rework and schedule overruns, allowing Sterling to scale revenue while expanding margins.

Looking ahead, Sterling expects Transportation margins to remain structurally higher as the segment continues prioritizing disciplined bidding, complex project delivery methods and diversified geographic exposure. For 2025, the company forecasts Transportation operating margins of 13.5%-14%, a significant improvement from 9.6% in 2024, reinforcing management’s view that the margin rebound reflects a strategic portfolio reset rather than a cyclical improvement. With continued growth expected in core Rocky Mountain and Arizona markets and more than two years of backlog visibility, the segment appears positioned for more stable and profitable growth going forward.

With more than two years of backlog visibility and improving mix quality, the segment appears positioned to sustain double-digit margins into 2026. If execution remains consistent and federal infrastructure funding continues to flow as planned, the current rebound increasingly looks like a structural reset rather than a cyclical spike.

Sterling’s Competitive Position

Sterling operates in a competitive infrastructure construction market alongside larger engineering and construction firms such as MasTec, Inc. MTZ and EMCOR Group, Inc. EME.

MasTec is a diversified infrastructure engineering and construction company with significant exposure to communications, power delivery and energy infrastructure. MTZ’s Pipeline Infrastructure segment’s EBITDA margin showed sequential growth of 390 basis points to 15.4%, paving the path for continued margin improvements in the fourth quarter and 2026.

EMCOR, by contrast, is a leading provider of electrical and mechanical construction and services with meaningful exposure to mission-critical facilities, including data centers, semiconductors, life sciences and energy infrastructure. While data centers are an important growth area for EMCOR, they represent one component of a broader mix of commercial and industrial end markets.

STRL Stock’s Price Performance & Valuation Trend

Shares of this Texas-based infrastructure services provider have gained 54.6% over the past six months, outperforming the Zacks Engineering - R and D Services industry, the broader Construction sector and the S&P 500 Index.

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 36.71, as shown in the chart below.

Earnings Estimate Revision of STRL

STRL’s earnings estimates for 2026 have increased in the past seven days to $12.21 from $11.95 per share. The revised estimated figure indicates 16.8% year-over-year growth.

Sterling currently carries a Zacks Rank #3 (Hold). 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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