Sterling Rallies 79.2% YTD: Can Record Growth Sustain the Run?

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The rally has been backed by record results, rapidly expanding mission-critical demand and a much larger backlog. However, the stock is now trading below its 50-day moving average, while remaining above its 200-day average, suggesting some near-term cooling after the sharp run. Investors therefore need to assess whether Sterling's growth outlook is strong enough to support further gains.

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Record Q2 Results Strengthen STRL's Growth Story

Sterling's second-quarter results gave investors plenty of support for the rally. Revenues jumped 90% year over year to $1.17 billion, including organic growth of roughly 50%. Adjusted earnings per share (EPS) climbed 116% to a record $5.80, while adjusted EBITDA increased 104% to $256.7 million. Adjusted EBITDA margin expanded more than 150 basis points to 22%.

E-Infrastructure remains the main engine. Segment revenues surged 192%, while adjusted operating income rose 148%. The legacy site development operation delivered 111% revenue growth, while CEC revenues increased 140% from its pre-acquisition second-quarter level. Mission-critical projects, including data centers, manufacturing and semiconductor facilities, accounted for 92% of E-Infrastructure's signed backlog.

That mix is important because Sterling is increasingly directing resources toward higher-margin opportunities rather than simply pursuing volume.

Massive Backlog Provides Multi-Year Growth Visibility

Sterling's backlog offers one of the strongest arguments that its growth can continue beyond 2026. Signed backlog reached $4.3 billion at June-end, up 116% year over year, while combined backlog climbed 150% to $5.6 billion. Organic growth was also strong, with signed and combined backlog rising 50% and 36%, respectively.

High-probability future-phase opportunities exceeded $1.4 billion. When combined with signed backlog and unsigned awards, Sterling has visibility into more than $7 billion of potential work, up more than $2.5 billion since 2025-end.

Data centers remain particularly promising. Management said projects are getting larger, lasting longer and expanding into additional markets, while some incremental opportunities are not yet included in backlog or future-phase figures.

CEC, Semiconductors and Expansion Add More Growth Drivers

CEC is giving Sterling greater exposure to mission-critical electrical work and creating opportunities to combine site development and electrical services on the same projects. Its prefabrication operations are also being expanded to improve field productivity and lower costs. Stone Ridge, meanwhile, strengthens Sterling's position ahead of expected activity in the Pacific Northwest.

Semiconductors provide another avenue. Sterling's large Northeast project is running ahead of schedule, with significant revenues expected in the third quarter. The company also secured initial work on an electric-vehicle plant in Atlanta and sees additional manufacturing opportunities. Management now expects E-Infrastructure revenues to grow more than 100% in 2026, with legacy site development approaching 70% growth or better.

These trends led Sterling to raise its 2026 outlook. Revenues are now projected to be $4-$4.15 billion, adjusted EPS to be $19.70-$20.30 and adjusted EBITDA to be $891-$916 million.

Earnings Estimates Point to Momentum Beyond 2026

Wall Street's estimates reinforce the growth case. Over the past seven days, the Zacks Consensus Estimate for 2026 EPS has risen to $20.03 from $19.21. The current estimate implies 84.1% earnings growth, while revenues are expected to rise 64.5% in 2026.

Growth is expected to moderate but remain healthy in 2027, with the consensus estimate calling for EPS and revenues to increase 29% and 20.5%, respectively.

STRL Estimate Revision

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Broker sentiment is also favorable. STRL has an Average Brokerage Recommendation of 1.25, with seven of eight brokerage recommendations at Strong Buy. The average Wall Street price target of $847.57 implies substantial upside from the latest closing price.

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Transportation and Housing Remain Key Challenges

Not every part of Sterling is growing. Transportation Solutions revenues fell 20% in the second quarter as resources were shifted toward higher-margin E-Infrastructure projects. Sterling expects Transportation revenues to decline 7-10% in 2026. The trade-off is better profitability, with management forecasting 150-200 basis points of adjusted operating margin expansion.

Building Solutions is another weak spot. Second-quarter revenues declined 1%, while adjusted operating income fell 11%. Housing affordability continues to pressure homebuilder activity, and Sterling expects the segment's revenues to decline modestly for 2026.

Investors should also expect some backlog volatility. Management cautioned that strong third-quarter revenue burn and the timing of new awards could produce a sequential backlog decline in the third quarter, even though it views this as a timing issue rather than weakening demand.

How Sterling Compares With Key Infrastructure Rivals

Sterling competes with Quanta Services, Inc. PWR, MasTec, Inc. MTZ and Granite Construction Incorporated GVA across parts of its infrastructure portfolio. Quanta Services and MasTec are particularly relevant as Sterling expands in mission-critical, electrical and data-center infrastructure, while Granite Construction provides a closer comparison in site development, transportation and heavy civil work.

Sterling's 79.2% YTD gain leads Quanta Services' 61.6%, MasTec's 29.3% and Granite Construction's 9.4% advances. That stronger performance has not made Sterling the most expensive of the group. STRL trades at 23.24X forward 12-month earnings compared with 38.6X for Quanta Services and 24.73X for MasTec, although it carries a premium to Granite Construction's 15.86X. Quanta Services commands the richest multiple, while MasTec trades closer to Sterling. Granite Construction offers the lowest valuation, but Sterling's faster earnings growth and mission-critical exposure help explain its premium to Granite Construction.

Valuation Is Reasonable, but No Longer Cheap

Sterling trades at 23.24X forward 12-month earnings, below its industry's 27.02X multiple. However, the stock stands well above its five-year median of 17.28X. Investors are therefore paying more than Sterling's historical norm for its stronger growth profile.

STRL Valuation vs Industry - P/E (F12M)

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Analyst sentiment remains favorable. Sterling's average brokerage recommendation is 1.25, with seven of eight recommendations at Strong Buy. The average Wall Street price target of $879.71 implies 65.1% upside from the latest closing price. Still, the stock's move below its 50-day moving average suggests that near-term momentum has moderated after the strong rally.

Should Investors Chase STRL After the Rally?

Sterling's record second-quarter results, rapidly expanding mission-critical backlog, rising earnings estimates and raised 2026 outlook provide solid reasons to believe the underlying growth story remains intact. Data centers, semiconductor projects, CEC integration and geographic expansion could support strong growth well beyond 2026.

Yet, a 79.2% YTD rally has raised expectations considerably. Transportation and residential construction remain soft, backlog could decline sequentially in the third quarter because of award timing, and STRL trades at a clear premium to its historical median.

With a Zacks Rank #3 (Hold), existing investors may consider staying invested to participate in Sterling's long-term E-Infrastructure growth. For new investors, the combination of strong fundamentals and a higher valuation supports a more measured approach rather than chasing the stock following its sharp run. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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