Stantec's 2025 Results Validate High-Teens Margin Trajectory but Reinforce Valuation Caution

What happened

Stantec reported record 2025 financials, with net revenue rising 10.7% to $6.5 billion and adjusted EBITDA margin climbing 90 basis points to 17.6%, driven by robust demand in infrastructure and data-center projects. Adjusted EPS grew 19.9% to $5.30, backlog increased 9.5% to $8.6 billion, and operating cash flow surged 43.1%, underscoring operational efficiency and a strong pipeline. These outcomes align closely with the DeepValue report's base case, which assumed mid-teens EPS growth and high-teens EBITDA margins supported by backlog durability and disciplined M&A integration. However, the report highlighted that the stock's premium valuation—trading at ~35.5x trailing EPS—leaves limited cushion for any growth slippage, a concern amplified by the company's 8.9% dividend hike and provision of a 2026 outlook that investors must scrutinize for sustainability. While the results confirm Stantec's execution capabilities, they do not alter the fundamental risk-reward profile, which remains skewed toward waiting for a pullback or clearer evidence of sustained high-single-digit organic growth.

Implication

The 2025 results reinforce Stantec's position as a high-quality compounder, with backlog growth and margin expansion validating the DeepValue report's assumptions about durable infrastructure and AI-driven data-center demand. However, the adjusted EBITDA margin of 17.6% merely meets the high-teens threshold, leaving little room for error against the report's bear-case trigger of margins falling below 17%. Investors should focus on the upcoming 2026 outlook for any signs of organic growth dipping below mid-single digits or procurement delays worsening, which would necessitate a thesis reassessment per DeepValue criteria. The dividend increase and strong cash flow generation are positive, but in an asset-light model, they must be weighed against the rich valuation and potential for multiple compression if growth moderates. Overall, while operational metrics are solid, the investment case remains one of patience, with better entry opportunities likely below $90 to improve risk-adjusted returns.

Thesis delta

The news confirms key elements of the DeepValue thesis, including high-teens EBITDA margins and backlog strength, but does not materially shift the 'WAIT' rating. Any upgrade would require evidence of sustained organic growth above mid-single digits or a valuation drop to the attractive entry point of $90, neither of which is indicated here. Thus, the thesis remains unchanged, emphasizing monitoring of 2026 guidance for deviations that could alter the risk-reward balance.