CIBC Capital Markets maintained its outperformer rating on the shares of Stantec (STN.TO) and reduced its price target to C$160.00 from C$173.00 after the company reported its first quarter results on May 13.
Despite Stantec's Q1 results coming in ahead of expectations and maintaining its guidance for 2026, the stock traded down ~6.5%, noted CIBC, which it believes is a reflection of the ongoing uncertainty from the threat of AI.
"With that said, we maintain our belief that AI can be used as a productivity tool by the engineers, as well as potentially grow its revenue set," said CIBC. "We maintain our Outperformer rating and lower our price target from $173 to $160 as we lower our multiple to reflect the uncertainty in the market created by AI."
While Q1 organic growth of 2.8% in the U.S. and 1.1% in Canada is below management's full-year organic growth outlook of mid- to high-single digits, management attributed the softer start to the completion of certain major mission-critical projects in the U.S. Buildings segment and the wind-down of certain Infrastructure projects in Canada, noted CIBC.
The company expects organic growth to build sequentially through the balance of the year, supported by a ramp in project activity, new awards, and backlog conversion, further noted CIBC. The company added that procurement cycle activity is picking up in the U.S., and the company expects organic growth to accelerate, supported by demand across all business verticals, added CIBC.
"In Canada, STN expects project activity to ramp up in Q2, driven by public sector investment and continued demand in Energy & Resources, with additional longer-term upside from early-stage nation-building and defence-related opportunities," said CIBC. "In the Global segment, management expects continued strength in Water and mining activity in Latin America, while expanding hiring and leveraging its global delivery centres to support demand."
CIBC also noted that, a theme that emerged from the call was the increasing shift toward larger, bundled project awards, with clients consolidating work into fewer, more integrated programs.
Management notes that what were historically "smaller, discrete engagements" are increasingly being packaged into "significantly larger mandates", in some cases with project values at or above $100MM, said CIBC and noted that while these projects can take longer to ramp up, they typically run for three to five years, providing longer-term visibility.
"Furthermore, these projects can support pricing power, given the limited number of competitors with the capability to execute such complex projects," added CIBC. "STN sees the transition toward these larger projects as positive, with the company also emphasising its ability to balance these longer-duration programmes with smaller projects, maintaining utilization and mitigating any lumpiness in delivery."
Price: $107.02, Change: $+0.63, Percent Change: +0.59%