Underground Construction - January 2022 - 16

2022 Utility & Communications Construction Outlook, Update
those population centers are reactively
working to catch up to prevent sewer
overfl ows. Recently, an increase in
the use of asset management plans
enable utilities to proactively manage
wastewater infrastructure maintenance
rather than reactively respond to pipeline
and equipment failures. Th e sector has
made strides to address current and
future needs through resilience-related
planning and innovations that produce
profi table byproducts or cost savings from
wastewater treatment.
Th e information presented creates an
interesting dynamic for the wet utility
contractor. Th e ASCE continues to give
" D's " for the sewer and stormwater
infrastructure markets, and the urgency
to repair infrastructure at the municipal
level was often tied to EPA enforcement
activities. Conversely, the availability
of funding and the creative contract
structures allowing for increased annual
maintenance should result in strength
growth for the wet utility contractor.
FIGURE 3: 3-Year UCC Index. Source: FMI Research, S&P Capital IQ; as of December 13, 2021
FIGURE 4: 5-Year UCC Index. Source: FMI Research, S&P Capital IQ; as of December 13, 2021
FIGURE 5: UCC Index Companies' Operating Performance & Valuation Metrics.
Source: S&P Capital IQ, data as of December 14, 2021; all data is TTM
16 JANUARY 2022 | UCONonline.com
UCCI performance & updates
Th e Utility & Communications
Construction Index ( " UCCI " ) presented
below presents the stock performance of
the sector's publicly traded stocks over
the past year (FIGURE 2), the past three
years (FIGURE 3), and the past fi ve years
(FIGURE 4). Th e UCC Index has not changed
this year, but Orbital Energy Group has
completed a few acquisitions in the segment
and as the near critical mass will be added
to the index. Th e YTD performance of the
UCCI is up over 40 percent on the year
because the expectation of an infrastructure
bill was fi nally met. Th is outpaced the S&P
500, which was up over 29 percent year-todate.
Market expectations for revenue and
earnings growth continue to rise.
Th e 3-Year UCC Index tells the tale of
COVID all too well. Th e companies in the
UCCI were performing consistently, but
they were not outperforming the S&P 500
leading into the pandemic. Th e initial stock
declines in the UCCI were incredibly steep
because the market had the perception that
profi t in most of these companies was tied
to the price of oil. As we discussed back
then, the perception was fl awed, and the
market saw revenue and profi t increase with
productivity gains in 2019 and expectations
of sizeable investment in U.S. infrastructure
in 2021. Th e market learned that these
companies are much more dependent on
the investments of investor-owned utilities
than the whims of oil pricing.
Th e 5-year UCC Index in FIGURE 4
is meaningful because it illustrates the
relative volatility of the past two years
compared to the two years prior. While
the segment performed well during the
Trump administration, the anticipation of
substantial infrastructure investments in
the segment have raised expectations to
all-time highs for the UCC companies.
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Underground Construction - January 2022

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