Bull List Report – WSP Global – TSE:WSP

WSP Global – WSP.TO

WSP Global Inc provides engineering and design services to clients in the Transportation and Infrastructure, Property and Buildings, Environment, Power and Energy, Resources, and Industry sectors. It also offers strategic advisory services. The firm operates through four reportable segments namely, Canada, Americas ( United States and Latin America), EMEIA (Europe, Middle East, India and Africa), and APAC (Asia Pacific, comprising Australia, New Zealand and Asia).

Focus area	Score
Valuation	50
Profitability	55
Risk	100
Returns	78
Dividend	44
Outlook	75
Debt	45
Growth	75
Overall	62

Click the KPI images to expand them if needed!

Pros

The company is set to benefit significantly from rapid infrastructure expansion across the globe
The company has the ability to grow organically and through strategic acquisitions, which give it more exposure to expanding verticals like data centers and healthcare
The company’s backlog is currently sitting at record levels and continuing to grow
WSP is one of the fastest-growing companies out of all its peers and is gaining market share across the globe
The company has broke out of its funk after a short report was issued on it in early 2024 and is now on the rise
Margins continue to expand, and WSP is one of the most efficient companies in the sector
The company is back to double-digit organic growth rates, the first time since 2022

Cons

WSP relies a lot on acquisitions to fuel growth. As the economy improves and infrastructure expansion accelerates, it will likely face heavier competition in terms of acquisitions, which could result in overpayments
The company’s results, being far above most other engineering firms, have garnered a premium valuation. WSP will need to keep up outsized growth to justify it
The company’s dividend has been stagnant over the years, as it now focuses primarily on mergers and acquisitions to provide shareholder value. Depending on your investing strategy, this could change your mind about the company
Its Asia Pacific segment is struggling due to delayed infrastructure buildout in these areas. Although it is a small portion of the business (12%), it is still a bit of a drag

The primary thesis around WSP Global being added to the Bull List is the fact that infrastructure expansion is accelerating at a rapid pace. I wanted to add an industry leader that is expected to take advantage of that spending. WSP has a strong mix of both public and private sector spending (see the KPI charts above), which means it should benefit from not only the expansion of government-related spending but also corporate-level spending in light of falling interest rates.

The company’s backlog sits at record levels. It continues to grow on a quarter-over-quarter basis, and its margins continue to expand. Both of these, in addition to the infrastructure spending, should be added tailwinds to stronger results.

The company’s balance sheet is strong, with interest coverage ratios exceeding 4X, and manageable debt levels. The company’s current leverage ratio sits at 1.4X. Although this is similar to the 1.5X it sat at last year, it is still a prudent ratio debt-wise and also well within the company’s guidance.

With the AI revolution underway, data center and IT infrastructure spending will, in my opinion, go through the roof. WSP should be able to benefit from this and also should be able to benefit from a large amount of corporations and governments that need to make adjustments to hit net zero carbon emissions.

From a valuation perspective, the company certainly isn’t cheap. However, I don’t expect it to trade at cheap valuations, considering the economic tailwinds that are behind it, plus the fact that this is one of the more profitable companies in the space with best-in-class margin profiles.

I believe the company will be able to continue to provide high single-digit revenue growth and double-digit earnings growth on an annual basis. Although some investors would prefer to see the company grow their dividend, I appreciate the fact the company makes strategic acquisitions into higher growth verticals that should ultimately fuel earnings growth, and thus share price, for shareholders moving forward.

Beta	0.5
Best monthly return	25.4%
Worst monthly return	-9.7%
Max drawdown	29.1%

The company has about half and half of its revenue in the private and public sectors. This means that the company is heavily dependent on government spending, which poses a regulatory risk, especially in less developed countries. Any sort of change in political parties to which the company has meaningful exposure comes with the risk of changing budgets, with the main headwind being a reduction in infrastructure spend.

Engineering firms always run the risk of projects being delayed, disputed, or coming in way above costs. These can not only hurt the firm’s profitability but can also damage the firm’s reputation with clients, resulting in the loss of future work. Although WSP has proven for years that it can deliver, it is never guaranteed that it will continue to do so.

Although WSP is a leader at this point, competition in the space is fierce. There are Canadian competitors like Stantec and SNC Lavalin (now AtkinsRéalis). There are also noteworthy US competitors like Aecom and Jacobs Engineering. The industry is cutthroat, and effective project management and bidding is something every engineering firm needs to do to continue to secure contracts.

Finally, the company drives a reasonable portion of growth through making strategic acquisitions. Although it has a long history of executing well, there are zero guarantees it will be able to continue to execute moving forward, and any missteps when it comes to acquiring companies in the space can result in a destruction of shareholder value and would no doubt impact its stock price.

	TTM	Historical average	Forward numbers
P/E	43.7	45.8	28.2
EV/EBITDA	17.0	16.6	–
Free cash flow yield	4.7%	–	–
P/FCF	21.3	–	–
PEG ratio	0.4	–	–

If you are looking for a bargain stock, WSP Global will certainly not fit your criteria. This is a “growth at a reasonable price” play. The company trades at 21x free cash flows and around 30x expected earnings.

The bright side? This is what you can expect to pay for an industry leader. A prime example I can think of when it comes to GARP plays was the decision to add Intact Financial to the Bull List despite high valuations. The company has gone on to nearly double the returns of the S&P 500 since that addition.

Strong companies trade at premium valuations. In my opinion, WSP is one of those companies. When we look to competitors, the company trades well above the median average in terms of price to earnings (22X). However, considering the company’s faster growth rates, I feel this valuation is more than justified.

The company’s organic growth rate has eclipsed 10% yet again, free cash flow has doubled on year-over-year basis, and margins have been trending upward for the better part of a year. The market is becoming more bullish on the company, and I’m really not surprised.

If we assign a target price-to-earnings multiple of around 30X on Fiscal 2025 earnings, we get a share price of $282 if the company is able to hit the top end of its expectations. This puts the company right inline with what I would view as a conservative fair value. Why conservative? Well, WSP’s historical valuations are often in excess of 35x trailing earnings. If it maintains its historical valuation, there is still upside here as at a 35x multiple would put the company at $332 if it hits 2025 earnings.

Of course, these are estimates, and estimates are far from guaranteed. However, WSP has not missed expected earnings estimates for more than 2.5 years and has only missed revenue estimates in one quarter over the same timeframe.

	WSP (WSP)	Stantec (STN)	Atkinsrealis (ATRL)
Operating margins	9.1%	9.1%	5.3%
5-year revenue growth	12.6%	8.5%	5.2%
5-year EBITDA growth	16.2%	10.4%	6.0%
P/FCF	21.3	28.2	49.4
ROIC	6.1%	8.5%	41.5%

The above chart highlights some of the largest Canadian competition WSP Global faces. However, make no mistake, there is plenty of competition globally when it comes to engineering and infrastructure companies.

For Stantec, operations have been a bit rockier, which ultimately has not led to as strong of results as WSP. It seems like it is in the midst of a turnaround at this point in time, but I’d much rather look to the more consistent operator in WSP.

For AtkinsRealis (formerly SNC-Lavalin), the company really doesn’t interest me much at all. It has gone through some extensive cyclical situations where it has been caught up in poor operation results and numerous scandals, which is highly likely why the company has rebranded. I would need to see years of strong results and a squeaky-clean record from AtkinsRealis to make me ever consider it.

Overall, when we look to the chart above, WSP has the better top-line growth, EBITDA growth, operating margins, and is the cheapest option on the list from a price to free cash flow perspective. Not only is it the best firm, in my opinion, but it is also the cheapest.

Yield	0.6%
Payout ratio (EPS)	17.5%
5-year dividend growth %	–
Money Spent/Received on Buybacks and Share Issuances	-$1120.4M

Despite having plenty of cash flow available, WSP Global does not prioritize dividend growth whatsoever. The company has not grown the dividend since the end of the financial crisis. Instead, it continues to prioritize acquisitions as the preferred method of spending cash flow.

Thus far, it has been difficult to argue with the company’s strategy, as it has successfully integrated the acquired companies into the fold for many years.

As an investor, I’d much rather a company allocate capital towards acquisitions that will grow the bottom line. This is likely a much better opportunity for that capital than I would ever get receiving it as a dividend.

Notable acquisitions as of late would include POWER Engineers, where the company spent $2.4B to acquire a company specializing in energy transitions (think renewables). Another acquisition would be the environmental infrastructure businesses of John Woods Group, which was a $1.8B acquisition.

Ultimately, I feel excess cash flows at this point in time are better kept in the hands of WSP rather than returned to me as a dividend. So, I have zero issues with the lack of growth. As you can see, with a small amount of equity issuances over the last year as well ($7.2M), the company isn’t a big fan of share buybacks either. It does have to issue shares frequently (notice the $1.2B in share issuances above), depending on how aggressively it is executing from an acquisition perspective. However, free cash flow per share has grown at 5x the pace as shares outstanding, highlighting it is spending the equity issuances wisely.

Last quarter	EPS	Revenue
Expectations	$2.64	$3.48B
Reported	$2.28	$3.46B
Surprise	6.55%	-0.51%

Annual estimates	EPS	Revenue
2025	$9.59	$13.91B
2026	$10.97	$15.21B
2027	$12.41	$16.05B

What stood out this quarter for WSP certainly wasn’t explosive growth, but it was flawless execution across a highly diversified portfolio. The company is showing exceptional cost control, and early returns from recent M&A bets are amplifying results.

Adjusted EBITDA hit a record $700 million, up 20% YoY, with margins of 20.2%, an all-time high as well. Free cash flow hit $887 million through the first nine months, up an impressive $645 million YoY.

The company’s backlog is rock-solid, growing double digits to $16.4 billion, or roughly 11 months of revenue. Despite adjusting for last year’s outsized U.S. storm response projects, organic revenue growth remained in the mid-single digits across most regions.

The Canadian business continues to lead, delivering 6% organic growth and an outstanding 27.8% margin. The backlog in Canada grew 15% year-to-date, helped by infrastructure wins like the Eglinton Crosstown West extension. WSP’s local positioning and project mix not only making it the industry leader in Canada, but also one of the most profitable in the industry as well.

When we look to the Americas, the segment came in at 6.6% organic growth, with margins of 22.3%. So although this segment isn’t as profitable as it’s Canadian arm, it’s growing faster which certainly helps.

A major highlight was POWER Engineers, a company WSP acquired not too long ago. It posted mid-teens growth and is now a clear margin contributor. One year post-acquisition, POWER is proving to be a textbook example of WSPs outstanding acquisition strategy.

Europe delivered a strong quarter with 6.4% organic growth. WSP’s leadership in the region is translating into growing market share and backlog momentum, particularly in smaller areas like Sweden. The company is not nearly as profitable in Europe, with margins coming in just above 15%, but as it gains a stronger foothold in the area, margin improves should follow.

I’ve mentioned this a few quarters in a row now, but it’s Asia Pacific segment is still in recovery mode. APAC saw a 3.9% organic revenue reduction, although New Zealand returned to growth after five quarters of declines. Australia is lagging but showing signs of backlog improvement. The real story here is margins. Once this area of the business can turn around, the results should be meaningful as APAC has 23% margins.

Ricardo, WSP’s newest acquisition, closed in early Q4 and will begin contributing this quarter. It looks like WSP continues to eye North America and key verticals like power, water, and rail for future acquisitions. With leverage ratios at only 1.4x and free cash flow generation at record levels, I do not think we’ve seen the last of WSP in terms of deals.

The company raised the lower end of its 2025 guidance, now calling for $13.8–$14.0 billion in net revenue and $2.54–2.56 billion in adjusted EBITDA. The tone on 2026 was cautiously optimistic. While the macro environment remains rough, the backlog is healthy, win rates are improving, and management expects more capital deployment from clients if uncertainty eases.

Overall, it was a great quarter and I’m still very bullish on WSP moving forward. It is an industry leader in terms of project wins and profitability.

Return to Growth Bull List

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