Argan Inc. (AGX)
Summary
Argan is an engineering and construction company in the energy infrastructure sector
A wide range of plants and power sources with expansion into renewable energy make for a diverse holding
The combination of high future demand and past consistent performance set the stage for company growth
Concerns arise from a high valuation and regulations
Business Overview
Argan, headquartered in Maryland, is an engineering and construction company, specializing in energy infrastructure. It operates across the US, as well as in the UK and Ireland.
Argan is made up of 4 subsidiaries.
Gemma Power Systems, Atlantic Projects Company, The Roberts Company and SMC Infrastructure Solutions span across 3 different segments. Argan’s revenue reflects its focus on the Power Industry segment, comprising 76.5% of its revenue.
As part of Argan’s growth strategy, it is actively expanding into renewable energy, with 55% of its current project backlog dedicated to renewable energy. This shift places the company in a competitive position for market share in the demand for cheap, renewable energy.
Investment Thesis
Power plants are aging, and carbon neutrality goals are higher than ever. In the 2023 long term reliability assessment by the North American Electric Reliability Corporation, many power plants are set to retire over the next 10 years. The total amount of power needed to replace these facilities is 83GW (one GW is approximately the power output generated by the Hoover Dam).
This future demand, combined with the solid fundamentals of AGX set the stage for company growth.
61% year-over-year revenue increase
Net liquidity of US$260M
US$1B project backlog
5 consecutive earnings beats
25% increase in dividends
Risks and Concerns
From an investment standpoint, Argan faces valuation concerns. After a year of sustained growth, its Price-to-Earnings (TTM) is nearly double that of the sector median. However its price-to-cashflow is better compared to its peers.
Due to the nature of the energy sector, Argan also faces regulatory concerns. Permits, the EPA, and other agencies could be roadblocks hindering Argan’s ability to work through its project backlog.
