Shares of leading Canadian engineering firms, WSP Global Inc. and Stantec Inc., have significantly declined over the past six months, down 23.1% and 23.7% respectively, in contrast to the S&P/TSX Composite Index which rose 12.5% during the same period. This downturn is attributed to investor fears that artificial intelligence will reduce corporate profits by performing tasks currently handled by consultants for hefty fees. Despite these concerns, both companies reported solid organic revenue growth of 3% to 5%.
Analysts, like Ian Gillies of Stifel, observe that these stocks, once highly valued, now face an "uphill battle to regain premium valuation multiples." However, RBC Dominion Securities analysts highlight strong underlying tailwinds, including large-scale infrastructure investments globally, and increasing activity in AI/data centers and power-related projects. TD Wealth Insights also notes that while share prices have fallen by approximately 25% to 30% for Stantec and WSP, their fundamental business metrics like net revenues, EPS, and backlogs are growing at double-digit rates, with expanding margins.
WSP's CEO, Alexandre L'Heureux, maintains that AI will not shrink revenue streams but instead enhance efficiency and product quality, especially given a global engineer shortage and an infrastructure deficit. He projects WSP's organic revenue to grow 4% to 7% this year, while the pool of engineers grows only 1%. He argues AI can increase capacity, helping address their record backlog of $19.7 billion as of the first quarter. Stantec's CFO, Vito Culmone, indicated a potential shift from acquisitions to share buybacks due to current valuations.
