President Donald Trump’s policies are contributing to economic uncertainty and could undermine the sort of large-scale projects that engineering firms like WSP feed on. The WSP Global Inc. logo is seen in Toronto on Sept. 1, 2024.Sean Vokey/The Canadian Press
WSP Global Inc.’s WSP-T share price has been zigzagging over the past several months as investors weigh rising political uncertainty against the Montreal-based engineering company’s dazzling prospects. What will break the impasse?
Since early November, the stock has rallied three times, with each winning streak adding between 5 and 10 per cent to the share price. But the selloffs during this period have been nearly as dramatic, leaving the stock almost unchanged in nearly four months of trading.
The volatility marks an unusual stretch for a stock that has been climbing steadily for more than a decade.
Over the past five years alone, the share price has gained 245 per cent as WSP demonstrated that it could score big from the sweeping trends of global infrastructure development and industry consolidation.
From the end of 2018 through 2023, revenue rose 82 per cent, EBITDA (earnings before interest, taxes, depreciation and amortization) nearly tripled and the company’s backlog of engineering projects expanded by more than 80 per cent, to $14.1-billion.
WSP is now one of the top engineering and consulting firms in the world, valued at $33-billion based on its outstanding shares. It will report its fourth-quarter and full-year 2024 results on Feb. 26, after markets close.
The stock has suffered brief setbacks before. Investors recoiled from pandemic-era lockdowns and snarled supply chains in 2020, and they worried about the economic impact of rising inflation in 2022.
But the current turbulence is different.
It follows the election of U.S. President Donald Trump, who has promised to impose tariffs, overhaul government spending and prioritize fossil fuels over renewable energy.
WSP unveiled ambitious three-year aspirations at an investor day event last week, including 50-per-cent EBITDA growth through 2027.
But Mr. Trump’s policies are contributing to economic uncertainty and could undermine the sort of large-scale projects – such as those that are driving the energy transition toward renewables and broader electrification – that engineering firms feed on.
“Given the tepid market reaction following the release of three-year targets, we can only surmise valuation is the main pushback and maybe uncertainty around government spending,” Jonathan Goldman, an analyst at Bank of Nova Scotia, said in a note this week.
The outlook for WSP is far from gloomy, though, if you can tune out the daily musings from the U.S. President.
The company is globally diversified with significant operations in Canada, the Americas, Europe and the Asia-Pacific region, offering some protection from a setback in any one place.
It is also diversified across operations, with expertise in areas that should transcend shifting political winds – including mining, energy, water transmission, data centres, bridges and roads.
At last week’s investor day, Joseph Sczurko, WSP’s U.S. region president, pointed out that tighter regulations of “forever chemicals” – toxic chemicals used in everyday objects that don’t break down easily – in the state of Minnesota provided one example of how governments remain focused on long-term issues despite the near-term overhang of trade and tariffs.
“So that I think really drives home the relevance of what we do, the importance of what we do, the currency of what we do and the opportunity behind what we do,” Mr. Sczurko said.
In addition to organic growth from its existing operations, WSP expects that mergers and acquisitions will remain an important part of its expansion strategy.
It struck about $5.3-billion worth of deals over the past three years, including the $2.4-billion acquisition of U.S. energy specialist Power Engineers in 2024, which has enhanced WSP’s push into energy transition projects.
The company sees deals “as a critical lever, particularly in high-growth sectors like energy transition, data centres and water infrastructure, where strategic acquisitions can provide immediate scale, expertise and client relationships,” Krista Friesen, an analyst at CIBC Capital Markets, said in a note last week.
Given this bullish backdrop, should investors ignore the White House and instead focus on WSP’s long-term potential?
That’s the case analysts are making.
Ms. Friesen raised her target price on the stock – or where she expects the stock to trade within 12 to 18 months – to $293. That implies a gain of nearly 15 per cent from the current price.
Benoit Poirier, an analyst at Desjardins Securities, expects that the share price can rise to at least $350 by 2027, based on conservative profit margins and modest earnings growth, and not including the benefits of acquisitions. This target implies a gain of about 37 per cent over the next three years.
The one snag: Mr. Trump will still be President. Investors may just have to live with that.