Great Lakes Dredge & Dock (GLDD) is a global provider of dredging services and the biggest provider of these solutions in the U.S., explains Taesik Yoon, growth stock specialist and editor of Forbes Investor.
Dredging generally involves the enhancement or preservation of the navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock for customers that include federal, state and local governments, foreign governments, and both domestic and foreign private concerns, such as utilities, oil and other energy companies.
GLDD’s U.S. Capital segment (53% of Q4 revenues) works on domestic port expansion projects, which involve the deepening of channels and berthing basins to allow access by larger, deeper draft ships and the provision of land fill used to expand port facilities.
It’s also involved in coastal restoration and land reclamations, trench digging for pipelines, tunnels and cables, and other dredging related to the construction of breakwaters, jetties, canals and other marine structures.
GLDD’s Coastal Protection segment (21% of Q4 revenues) moves sand from the ocean floor to shorelines where erosion is a continuous problem that has intensified with the rise in coastal development and has become a big issue for state and local governments concerned with protecting beachfront tourism and real estate.
The company entered 2021 with $472.3 million in domestic low bids pending formal award and additional options on projects currently in backlog, which more than doubled the $201.3 million in pending awards the company had a year earlier.
Combined with the $559.4 million in backlog it also ended 2020 with, this implies over $1 billion in pending future work. That’s up 30% from $791 million a year ago.
And this doesn’t include $90.3 million in successful low bids on two major dredging projects — consisting of the Boston Harbor Navigation Improvement Project-Phase 3 worth $61.8 million and Rehabilitation Effort for the Panama City Beaches Coastal Storm Risk Management Project in Florida worth $28.5 million — which were formally awarded and entered into backlog last week.
In our view, these new project wins are a harbinger of more to come. Indeed, the biggest reason why GLDD’s operations have held up well throughout the pandemic is because dredging was deemed an essential service by the federal government.
The good news is, the total domestic bid market could be as favorable or even more so this year. Indeed, driven by the large-scale port deepening projects along the East and Gulf Coast, as well as the essential nature of these projects, GLDD expects to see bids for multiple project phases for port deepenings in Corpus Christi, Mobile, and the Houston ship channel that will continue for the next several years.
Additionally, strong hurricane and storm seasons have resulted in an increase in erosion and other damages, which adds to the recurring nature of the company’s business and the need for more frequent coastal protection and port maintenance projects.
Any incremental boost on top of all this from the massive the infrastructure spending proposal that President Biden is set to unveil later today would simply be gravy.
No wonder the consensus earnings estimates for this year have analysts expecting strong growth in excess of 50% over the balance of 2021 once GLDD gets past a Q1 that’s likely to see profits down from an unusually strong prior-year period (which benefited from a sizable one-time claims settlement).
And to be frank, even that may prove conservative. We are optimistic that the stock's positive momentum will quickly resume once this latest pressure eases.
