On July 15 President Donald Trump revised the National Environmental Policy Act (NEPA) to speed up approvals for federal projects such as pipelines, highways and power plants. The changes decrease the number of infrastructure projects that will be subject to NEPA review going forward, effectively shortening permit processes that have historically delayed large-scale infrastructure projects in the U.S. The revised regulations have been published on the Council of Environmental Quality’s website and are now law.
Of course, these new regulations are good news for infrastructure companies. Here we look at seven infrastructure concerns that are likely to benefit from, and capitalize on, the new NEPA.
- KeyCorp (NYSE:KEY)
- U.S. Steel (NYSE:X)
- Caterpillar (NYSE:CAT)
- Apache Corp. (NASDAQ:APA)
- Fluor Corp. (NYSE:FLR)
- Granite Construction (NYSE:GVA)
- Aecom (NYSE:ACM)
The changes to NEPA remove safeguards that had been in place to protect wildlife and natural habitats from drilling. However the new regulations will dramatically speed up the approval process for major infrastructure projects, and proponents of the revised NEPA rules say they are needed to make progress on many long overdue infrastructure improvements across America.
Infrastructure Stocks Benefiting From The New NEPA Rules: KeyCorp (KEY)
Although relatively small compared to the major U.S. banks, Cleveland, Ohio-based regional bank KeyCorp finances companies involved in building U.S. infrastructure, including in the so called “rust belt states” of Ohio, Michigan and Indiana where infrastructure improvements are desperately needed. In business continuously for nearly 200 years, KeyCorp today has $145 billion in assets under administration.
Today, KeyCorp operates in 15 states and employs 18,000 people. The bank, which has a $17 billion market cap, could get a boost in lending on new infrastructure projects that get approved under the revised NEPA rules.
Additionally, KeyCorp has been extremely good to its shareholders over the years. In the third quarter of 2019, KeyCorp raised its dividend 9% from 18 cents a share and announced plans to repurchase $1 billion worth of stock. Today, KeyCorp has a high dividend yield of 4.3%, which should appeal to investors.
The company’s stock price looks like a bargain today at $12.37 a share, well off its 52-week high of $20.52 per share. Like most banks, KeyCorp has been hammered by the Covid-19 pandemic. But if infrastructure projects kick into high gear, look for this Cleveland bank to cash in.
U.S. Steel (X)
To many, the very definition of an American infrastructure company is Pittsburgh, Pennsylvania-based U.S. Steel. As the second largest domestic producer of steel after Nucor (NYSE:NUE), U.S. Steel is sure to benefit from any upturn in infrastructure projects throughout America.
The company has been hard hit by the global pandemic and has forecast a second quarter loss of $315 million, much worse than the $135 million quarterly loss that had been expected by Wall Street analysts. Any rebound in major infrastructure projects is good news for this U.S’ bedrock construction company.
To its credit, X stock has risen 35% since markets bottomed in late March, now trading at nearly $8 per share. However, the stock remains about 20% below its February peak of $9.40 a share.
X stock had been as high as $182.79 back in 2008 amid the U.S. housing bubble prior to the global financial crisis. Unfortunately, lower demand from construction and automotive companies has led to a drop in global steel prices and the pandemic has only further weakened demand.
Trade frictions between the U.S. and China haven’t helped prices either. It will take an infrastructure upsurge to help U.S. Steel stage a long-term recovery.
We’ve written about Caterpillar recently, but, as the largest heavy machinery company in the U.S., it deserves a spot on this list. Caterpillar manufactures heavy machinery used in the construction industry, as well as industrial products such as diesel engines and gas turbines.
In more normal times, Caterpillar generates annual revenues of nearly $60 billion, and that figure could bet a boost should U.S. infrastructure projects be put on the fast track. A strong U.S. economy and large scale infrastructure projects drive demand for the heavy machinery Caterpillar manufactures, such as dump trucks, bulldozers and backhoes.
After bottoming at $91.85 a share on March 23, CAT stock has returned to its pre-pandemic heights and now trades just below its February high of $139.59. And analysts remain bullish on CAT stock, especially since it continues to trade at its lowest valuation since 2012, making it cheap by historic standards.
The current consensus among 26 polled investment analysts is to “buy” CAT stock. Investors who do grab CAT stock will be rewarded with a high dividend yield. Caterpillar increased its dividend for 25 consecutive years, making the stock a dividend aristocrat. The company’s fortunes will only be bolstered by more U.S. infrastructure projects.
Apache is an oil and gas production company that will likely benefit from pipeline and processing infrastructure projects. Apache explores and produces crude oil, natural gas and natural gas liquids throughout the U.S. and has a market capitalization of about $8 billion. Oil currently accounts for 80% of Apache’s business, and in 2018 the company formed Altus Midstream, an entity used to fund future midstream investment needs, including for infrastructure and construction projects. Apache owns 71% of Altus Midstream.
APA stock is currently trading at less than half its 52-week high of $33.77 a share. Covid-19 and volatility in the oil and natural gas markets have depressed Apache’s stock price. However, APA stock has rebounded sharply from a low of $3.80 back in early April.
The current high price target on the stock is $26 per share, and the consensus view of analysts is to “hold” APA stock. A boom in infrastructure related to the oil and natural gas sector could be just what this company needs to send its share price higher in coming months.
Irving, Texas-based Fluor is the largest publicly-traded construction company in the entire world. If anyone is going to benefit from the new NEPA rules, it will be this engineering and construction firm.
In business since 1912, the company played a role in building most of the pipelines and oil refineries in California, and grew substantially during President Franklin D. Roosevelt’s “New Deal” public works projects of the 1930s. The company diversified away from oil and gas in the 1980s and most recently had large contracts to rebuild the Middle East after the Iraq War, and New Orleans after Hurricane Katrina. It has also been involved in constructing the Trans-Alaska pipeline. Fluor has annual revenues of about $20 billion.
Yet despite all of its success, FLR stock has languished over the past decade. After peaking at $93.28 a share in 2008, the company’s share price has steadily fallen and today sits at just under $12. It was as low as $2.85 in March of this year. Any sustained comeback will require some pretty big contracts, and a new wave of infrastructure projects could help immensely.
The company recently appointed a new Chief Financial Officer and announced that it is divesting its construction rental businesses, which may help the company’s fortunes in the short-term. But new construction contracts will boost the company over the long-term.
Granite Construction (GVA)
Granite Construction is another large company that specializes in infrastructure projects. The company is actually divided into two operations, one based in California and the other in Texas. The main focus of the business is any project that needs granite or similar materials, such as paved roads, highways, bridges, tunnels, locks and dams, and transit infrastructure such as train stations, subway tunnels and bus and airport terminals.
Granite Construction also offers mud, waste and debris removal as well as hazardous material handling and utility repairs. The company provides sand, gravel and various mixes of asphalt to construction projects large and small. The company has annual revenues in excess of $3 billion.
Today, GVA stock is trading at $18.62 a share, less than half its 52-week high of $44.89. However, the company’s stock has gained more than 20% in the past month on hopes that the worst maybe over for the U.S. economy during the pandemic.
Should the new NEPA regulations usher in an era of infrastructure projects, Granite Construction is sure to benefit in some capacity. The company is actively involved in many different large construction works. Analysts seems to agree, and the consensus view is to “hold” GVA stock.
AECOM is an engineering firm formerly known as the Kentucky-based Ashland Oil and Refining Company. The company moved out of the oil fields and into highway construction using the refinery byproducts it had easy access to in order to make asphalt.
Overtime, Ashland grew into one of America’s biggest road-building firms. In the late 1990s, Ashland returned to the petroleum business. The company restructured and today AECOM stands for “Architecture, Engineering, Consulting, Operations and Maintenance.”
Through a series of acquisitions, AECOM brought into its fold firms that specialize in engineering, design, planning, sustainability and environmental management. Today the company employs some of the leading architects, surveyors and consultants in the U.S. AECOM is well-positioned to take advantage of major infrastructure projects, providing design, project management, engineering, risk management and operations and maintenance services.
Like other companies on this list, ACM stock is well off its 52-week highs. The company’s shares currently trade at $36.73, down from $51.92 before the pandemic. Analysts see upside potential in the stock though, with a media price target of $45 a share and a consensus “buy” rating on the stock.
Given the diversity of its business and the high-caliber workforce the company employs, it could be one of the big winners in any U.S. infrastructure boom that results from the fast-tracking of projects due to the new NEPA rules. ACM stock is definitely one investors should add to their watch list.
As of this writing, Joel Baglole did not own shares in any of the aforementioned companies.