The U.S. infrastructure, both public and private, has been underfunded for over two decades, leading to aging assets and inefficiencies.

The Bipartisan Infrastructure Law’s $1.2 trillion investment aims to address these issues, benefiting sectors like construction and engineering.

Aecom (ACM), a leading infrastructure consulting firm, stands to gain from this, as 55% of its revenue comes from government projects.

With a $23 billion order book and strong revenue growth, Aecom is well-positioned for long-term growth, despite market concerns over cyclical infrastructure spending.

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The supply chain has seen underinvestment and aging infrastructure for over two decades. As a result, the U.S. infrastructure, both public and private, has slowly deteriorated.

More than 7% of bridges are structurally deficient, and there is a water main break every two minutes, resulting in billions of gallons of treated water lost daily.

Corporate assets are also aging, with the average age of assets at their oldest level in over 20 years. 

The ratio of net to gross property, plant, and equipment (PP&E) has declined from nearly 59% in 2001 to currently 54%. It will take over $500 billion to bring asset values back to 2001 levels.

This lack of investment has constrained supply chain capacity and efficiency.

The pandemic exposed vulnerabilities as outdated infrastructure struggled to meet surging demand. It was a wake-up call for much-needed upgrades.

The $1.2 trillion Bipartisan Infrastructure Law aims to rebuild aging infrastructure across the United States. 

This investment is expected to generate sustained demand for industries involved in next-generation infrastructure over the next 10 years.

Areas like construction, engineering, electric grid components, transportation manufacturing, and telecommunications are well-positioned.

This is where Aecom (ACM) comes in as one of the largest infrastructure consulting firms in the world.

The company provides consulting services that help governments, businesses, and organizations plan and execute infrastructure projects.

It operates in critical parts of infrastructure such as transportation, water, energy, and environmental services, where demand for its expertise has grown significantly. 

As aging infrastructure across the U.S. becomes increasingly strained, Aecom is poised to benefit from major government initiatives aimed at modernizing these systems.

The company’s 55% of revenue stems from government-funded projects, providing a stable foundation for long-term growth.

Additionally, a key driver of Aecom’s success is its ability to consistently win large, long-term contracts.

These contracts have been instrumental in the company’s growth, with its order book exceeding $23 billion globally.

Furthermore, in its latest earnings, Aecom reported 8% revenue growth and a 50 bps operating margin increase YoY.

Despite these tailwinds, the market has concerns about the cyclical nature of infrastructure investments. 

These concerns are reflected in the company’s Uniform P/E of 14x, far below the corporate average.  

The U.S. is currently experiencing what we call a “supply chain supercycle,” a period marked by significant demand for infrastructure improvements.

From the Bipartisan Infrastructure Bill to other state and local government initiatives, there is significant support for long-term infrastructure investments.

The structural issues related to aging infrastructure and the push for sustainability suggest there is more business for the company than current valuations reflect. 

Government support and the urgent need for infrastructure renewal could sustain demand well into the future, offering Aecom opportunities for continued growth beyond what the market currently prices in.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research