Executive Summary / Key Takeaways

• Diversified Growth Engine: Stantec (NYSE:STN) demonstrates robust growth through its diversified business model across five operating units and three geographies, capitalizing on enduring macro trends like aging infrastructure, water security, energy transition, and advanced manufacturing.
• Record Performance & Upgraded Outlook: The company delivered strong Q2 2025 results, with net revenue up 6.9% and adjusted EPS growing over 21%, leading to an increased 2025 outlook for net revenue growth (10-12%), adjusted EBITDA margin (17-17.4%), and adjusted EPS growth (18.5-21.5%).
• Strategic M&A and Market Leadership: Recent acquisitions, including Page in the U.S. and Cosgroves in New Zealand, have bolstered Stantec's Buildings segment, positioning it as the second-largest architectural firm in North America and strengthening its integrated engineering and architecture capabilities.
• Technological and Operational Edge: Stantec leverages digital tools, including over 10,000 Copilot licenses and its Global Technology Center in Pune, to enhance efficiency in design, project management, and back-office functions, contributing to margin expansion and high-quality delivery.
• Robust Backlog and Future Visibility: A record contract backlog of $7.9 billion, representing approximately 12 months of work, underscores sustained demand and provides strong revenue visibility, particularly in Water and Energy & Resources.

Stantec's Blueprint for Sustained Outperformance

Stantec Inc., established in 1954, has evolved from Stanley Technology Group Inc. into a global leader in sustainable design and engineering, offering comprehensive professional services across infrastructure and facilities. The company's enduring strategy centers on a diversified business model, balancing organic growth with strategic acquisitions to capitalize on critical global macro trends. These trends include the imperative of aging infrastructure, growing demands for water security, the global energy transition, the expansion of advanced manufacturing, and the burgeoning data center market. This strategic approach has allowed Stantec to build a resilient business that consistently delivers value across economic cycles.

The company's competitive standing is robust, particularly in integrated engineering and architecture. Stantec's acquisition of Page, a U.S.-based architecture and engineering firm, significantly strengthens its position as the largest integrated engineering and architecture firm in North America and makes it the second-largest architectural firm on the continent. This move enhances its offerings in high-growth sectors such as healthcare, advanced manufacturing, data centers, and mission-critical facilities. Stantec's deep expertise in environmental services and water management also provides a distinct competitive advantage. For instance, its leadership in the U.K. water sector, evidenced by securing over 20 AMP8 frameworks, solidifies its market share against rivals.

In comparison to competitors like MYR Group Inc. (MYRG), which specializes in electrical infrastructure, Stantec offers a broader, more integrated suite of consulting and design services. While MYRG might excel in specialized electrical execution, Stantec's comprehensive approach, spanning architecture, environmental sciences, and project management, allows for more holistic client solutions. Against global consulting giants like AECOM (ACM) and Jacobs Solutions (J), Stantec differentiates itself with a strong focus on environmental and sustainability consulting, potentially offering more efficient compliance strategies. While Jacobs emphasizes technology integration, Stantec's integrated architecture and engineering services foster strong client loyalty in holistic facility projects. Tetra Tech (TTEK), a specialist in environmental and engineering consulting, shares some overlap, but Stantec's broader portfolio provides greater strategic adaptability across diverse sectors. Stantec's strong brand and global network translate into enhanced customer loyalty and recurring revenue, enabling it to maintain pricing power even in competitive bids.

Technological Edge and Operational Efficiency

Stantec's technological differentiation is not rooted in a single product, but rather in its strategic application of digital tools and platforms to enhance project delivery and operational efficiency. The company has established an AI task force to explore how artificial intelligence and other digital tools can improve speed and quality across its operations. This includes internal processes like financial analysis and proposal generation, as well as optimizing and automating design processes. Stantec has deployed over 10,000 licenses of Copilot throughout the organization, signaling a commitment to integrating AI into its daily workflows.

While the direct impact on margin expansion from these technologies is still in its early stages, management anticipates they will play a more significant role in the years to come. The strategic intent is clear: to make back-office functions more efficient, accelerate speed to market for proposals, and optimize design. Furthermore, Stantec utilizes various AI, virtual reality (VR), and augmented reality (AR) tools in the design process. These tools not only speed up delivery but also enhance client review, particularly for non-technical stakeholders who can better visualize and interact with project designs. The company's Global Technology Center in Pune, India, with approximately 1,400 to 1,500 employees, serves as a critical hub for supporting both corporate functions and operations. This center is actively expanding to service growing demand, notably for the U.K.'s AMP8 program, contributing to both margin expansion and high-quality project delivery.

Financial Momentum and Robust Liquidity

Stantec has demonstrated consistent financial momentum, culminating in a strong first half of 2025. In the second quarter of 2025, net revenue reached $1.6 billion, marking a 6.9% year-over-year increase, primarily driven by 4.8% organic growth. Adjusted EBITDA surged by 15% to $284.4 million, with the adjusted EBITDA margin expanding by 120 basis points to 17.8%. This margin enhancement reflects solid project execution and disciplined cost management, including lower administrative and marketing expenses due to reduced claim provisions and discretionary spending. Adjusted EPS saw impressive growth, increasing over 21% to $1.36 compared to Q2 2024. On a year-to-date basis through Q2 2025, the adjusted EBITDA margin stands at 17%, a full 1% ahead of the first half of 2024, and adjusted EPS is up a robust 24.9%.

The company's liquidity and capital resources remain exceptionally strong. Year-to-date operating cash flows in Q2 2025 doubled to $235 million, reflecting robust revenue growth and efficient collections. Days Sales Outstanding (DSO) at the end of Q2 2025 improved to 73 days, well below the internal target of 80 days or lower. Stantec's net debt to adjusted EBITDA ratio was a healthy 1.1x at June 30, 2025, comfortably within its target range of 1x to 2x. The company further strengthened its financial flexibility by issuing $425 million in senior unsecured notes at a favorable 4.374% interest rate and increasing its unsecured revolving credit facility to $1.2 billion. These financing activities were "well oversubscribed," indicating strong market confidence in Stantec.

Segmental Strengths and Project Wins

Stantec's diversified business units are all contributing to its growth trajectory.

The Water business continues its multi-year streak of strong organic growth, achieving 12.4% organic growth in Q2 2025. This is fueled by major wastewater projects in Canada (over 30% organic growth), large public sector water supply projects in the U.S., and double-digit organic growth across the U.K., Australia, and New Zealand. The U.K.'s AMP8 program, which officially commenced in April 2025 with a budget approximately 75% larger than its predecessor, is a significant tailwind, with Stantec actively hiring and expanding its delivery centers to meet demand.

The Buildings segment is experiencing robust demand, with U.S. growth driven by mission-critical, science and technology, and civic projects. The acquisition of Page, a US$300 million net revenue company, significantly enhances Stantec's capabilities in healthcare, advanced manufacturing, and data centers. Data centers, while currently 2% to 3% of net revenue, are a "fastest-growing area" with potential to triple in a couple of years. The Energy & Resources business delivered high single-digit organic growth in Q2 2025, driven by a major hydropower dam in the U.S. Southwest, industrial process projects in Canada, and copper mining and energy transition solutions in Chile and Peru. The Infrastructure segment benefits from public sector investments, with growth in land development in Alberta and transit and rail projects in Germany. Stantec was awarded a $150 million contract for the U.S. Navy shipyard infrastructure optimization program and a 4-year framework with Transport for Greater Manchester. Finally, Environmental Services is seeing growth from energy transition projects, mining, and industrial infrastructure, including collaboration on Google (GOOGL)'s water replenishment project in Taiwan.

Outlook and Strategic Trajectory

Stantec's strong year-to-date performance and recent acquisitions have led to an increased outlook for 2025. The company now anticipates net revenue growth of 10% to 12%, up from previous guidance of 7% to 10%. Organic net revenue growth is expected to be in the mid-to-high single digits across all businesses, with Canada and Global maintaining mid-to-high single-digit organic growth. While the U.S. organic growth outlook was moderated slightly to mid-single digits, management expects acceleration in the second half of the year, supported by a healthy backlog and the "One Big Beautiful Bill Act" stimulating investment.

The adjusted EBITDA margin guidance has been raised and narrowed to 17% to 17.4%, up from 16.7% to 17.3%. This reflects confidence in solid project execution and cost discipline, with Stantec expecting to hit its strategic plan target of 17% to 18% adjusted EBITDA margin a year early. Adjusted EPS growth is now projected to be between 18.5% and 21.5%, significantly outpacing net revenue growth. Stantec is firmly on track to deliver another record year, driven by macro trends like aging infrastructure, data centers, energy security, water treatment, healthcare, and reshoring. The M&A pipeline remains full, with opportunities for both mid-sized (1,000-2,000 person) and larger firms globally, and the company's strong balance sheet positions it to pursue further strategic acquisitions. Stantec is confident in achieving its 2024-2026 strategic plan target of 50% net revenue growth to $7.5 billion by the end of 2026.

Risks and Mitigation

While Stantec's outlook is positive, certain risks warrant consideration. Policy shifts and regulatory changes in the U.S., particularly with a new administration, could lead to minor disruptions in project funding priorities. However, Stantec's exposure to the U.S. federal government is limited (roughly 5% of net revenues) and primarily supports essential infrastructure. Management notes that procurement cycles in some U.S. government agencies have been slower due to staffing changes, but these issues are diminishing. Private sector caution in the U.S. during the first half of 2025, characterized by "trepidation to make that final investment decision," is expected to accelerate in the second half, supported by a strong U.S. backlog.

The financial difficulties of Thames Water in the U.K. are a public concern, but Stantec's long-standing relationship (almost 200 years) and ongoing work with the utility mitigate negative impacts. Management emphasizes that "the work still needs to be done," and Stantec has experienced no payment issues. While data centers are a high-growth area, Stantec maintains a diversified portfolio, with data centers representing only 2% to 3% of net revenue, thus limiting exposure to potential cyclicality in this sector. The company's diversified model across geographies and business units provides a natural hedge against localized economic downturns or sector-specific challenges.

Conclusion

Stantec stands as a compelling investment proposition, underpinned by its diversified and resilient business model, strategic acquisitions, and a clear focus on operational excellence. The company's ability to consistently deliver strong financial results, as evidenced by its robust Q2 2025 performance and increased 2025 guidance, reflects its effective execution against a backdrop of enduring global demand for infrastructure, water, and energy transition solutions. Stantec's leadership in integrated design and engineering, bolstered by strategic acquisitions like Page, solidifies its competitive position and expands its reach into high-growth sectors.

The company's proactive embrace of digital technologies, including AI and its Global Technology Center, positions it for future efficiency gains and continued margin expansion, further strengthening its competitive moat. With a record backlog providing significant revenue visibility and a healthy balance sheet supporting further M&A, Stantec is well-equipped to achieve its ambitious 2024-2026 strategic plan targets. While macroeconomic uncertainties and policy shifts present ongoing considerations, Stantec's diversified portfolio and proven ability to adapt underscore its potential for sustained value creation for discerning investors.