Sterling Infrastructure (NASDAQ:STRL) saw its shares tumble more than 10% in the wake of its second-quarter earnings report, even as the company posted record revenue and raised its full-year outlook. The decline, which brought the stock to $547.06 by Friday's close, reflects investor concerns over a shifting revenue mix that is pressuring overall profitability.
The Woodlands, Texas-based construction firm reported revenue of $1.17 billion for the quarter, a 90% surge year-over-year, while adjusted earnings more than doubled to $5.80 per share. Adjusted EBITDA margin expanded by 150 basis points to 22.0%. Yet the market focused on a different metric: the adjusted operating margin within its largest segment, E-Infrastructure, which fell by roughly 420 basis points.
E-Infrastructure now accounts for 77.5% of total revenue, up from 50.5% a year ago. Within that division, site-development margins remained robust in the high-20% range, but the faster-growing electrical operations—driven by data center demand—posted a lower adjusted margin of 11.4%. As electrical work expands more rapidly, the blended margin rate declines. Chief Executive Joe Cutillo characterized the shift as “purely mix.”
Segment Breakdown
The second-quarter segment results illustrate the trade-off. E-Infrastructure revenue nearly tripled to $905 million, yet its adjusted operating margin contracted to 24.1% from 28.3% a year earlier. Transportation revenue fell 20% to $156.7 million as resources were redeployed to mission-critical projects, but its margin expanded by 510 basis points to 19.5%. Building Solutions remained flat at $106.5 million, with margin down 110 basis points to 9.9%.
Acquisitions contributed $250.8 million to revenue, representing roughly 45% of the year-over-year increase. Excluding those deals, organic growth stood at nearly 49%, in line with management's estimate of 50%.
Guidance Raised, But Backlog Risks Loom
Sterling lifted its 2026 revenue guidance midpoint by 8.7% to a range of $4.00-$4.15 billion. Adjusted EPS guidance was raised by 6.8% to $19.70-$20.30, while adjusted EBITDA guidance increased by 5.3% to $891-$916 million. This marks the second consecutive quarterly raise.
Order visibility remains strong. Signed backlog totaled $4.33 billion, with combined backlog at $5.62 billion. Acquisitions made up 45.6% of combined backlog, while organic signed backlog grew 50%. The company also reported an additional $1.4 billion in likely upcoming project phases, bringing visible work to over $7 billion—more than 1.7 times the new revenue midpoint. The signed-backlog book-to-burn ratio stood at 1.4, excluding Stone Ridge.
However, management cautioned that award activity may weaken in the third quarter and that backlog could decline sequentially. Persistent electrician shortages could also limit capacity, and softness in the housing market continues to weigh on Building Solutions.
Market Reaction and Valuation
The stock's decline pushed its trailing price-to-earnings ratio to 39.4x, which is 55% higher than EMCOR's 25.4x and 21% higher than Primoris's 32.5x. It trades close to Comfort Systems, which carries a trailing P/E of 41.7x.
Analysts remain largely positive, with eight Buy ratings, one Overweight, and one Hold. The median price target stands at $956, representing substantial upside from Friday's close. The average target is $921, with a range of $754 to $1,015.
The consensus 2026 earnings estimate has risen to $19.64 from $18.89 over the past month but remains below management's adjusted guidance midpoint of $20.00. Investors will likely monitor analyst revisions and Monday's market open for further direction.
