With the markets anticipating an infrastructure bill, it’s a good idea to anticipate which stocks are set to do well. In this particular case, let’s focus on three less visible stocks with strong exposure to infrastructural spending. Namely, engineering design software company Autodesk (NASDAQ:ADSK), metal coating and infrastructure solution provider AZZ Inc (NYSE:AZZ), and maintenance and infrastructure equipment manufacturer Federal Signal (NYSE:FSS). Here’s why all three are attractive.
1. Autodesk
The architecture, engineering, and construction (AEC) software company is a great business with a lot of potential for growth in the coming years. The shift to subscription-based sales rather than license sales will make it easier for the company to retain existing customers and convert non-compliant customers. Meanwhile, the increasing use of digitization and cloud-based collaboration within AEC design also plays to Autodesk’s strengths as a software solution provider.
There’s little doubt that Autodesk is a great company, but is it a great investment? With a current market cap of $62.8 billion, the company trades on nearly 47 times its 2020 free cash flow (FCF), and there are some question marks around its guidance.
The debate centers on the question of whether it can hit its targeted FCF of $2.4 billion in fiscal 2023. Based on management’s guidance for fiscal 2022, FCF is going to need to jump from around $1.61 billion in 2022 to $2.4 billion in 2023. In fact, the Wall Street analyst consensus is that Autodesk will fall shy of the target with $2.2 billion in FCF in 2023. Given the high rating on the stock, there appears to be little room for disappointment.
That said, Autodesk is still a high-growth company and an infrastructure spending bill would provide a boost to AEC spending. That might be enough to boost Autodesk’s chances of hitting its targets and dispel fears over its guidance.
2. AZZ Inc
Unless you are Fred Flintstone, building roads, bridges, and water infrastructure will require steel and electrical products. That’s where AZZ comes in. The company generated around 80% of its operating income from metal coatings such as hot-dip galvanizing of steel and surface coatings in 2020. In plain English, AZZ makes pre-fabricated steel safer and less corrosive, therefore extending and enhancing infrastructure projects. AZZ is the leading hot-dip galvanizer in the U.S.
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