I received an email from one of our readers the other day regarding Aecon Group Ltd. (TSE: ARE). This reader had some insightful thoughts, which I got permission to share with you, along with this, I thought that I would do some more research on this company and provide you with a Stock Analysis on it. Here is what our reader Mike M. had to say about Aecon.

"Aecon's oversold shareprice of $6 CAD is making their dividend more attractive. I measure it now close to 4%, which on its own might not be great shakes. However, their business is as recession proof as possible in Canada. They have almost no debt, and close to 2 billion in CAD backlog of signed work with the government and various large Canadian enterprises. They will be first in line for any new recessionary infrastructure projects. They just clinched a $180million 4 year contract with Enbridge, and in reseaech i carried out i estimated they closed $450m of new business alone in the last quarter about to be reported on the 29th . So i reckon their dividend priced at these rates is probably more sure-thing for the next couple of years than many of the better paying dividends. And considering Aecon has taken an irrational bashing in the market slide i would not be surprised if they raise their div when they report their quarter next week. Unfortunately i bought them at 8.00 so will be looking to average down once i feel its reached support levels. Maybe the div is not high yield enough for you but i predict it to be a consistent earner of 3.5-4%, especially at these prices and in these times."

Aecon Group is one stock that I have had on my watch list for a little bit of time now, it sort of fell behind other stocks that I was waiting to buy. With the current market situation, there have been a lot of attractive opportunities showing up. Lets see if Aecon fits the bill according to my Stock Analysis. You will notice that I didn't follow the normal Dividend Stock Analysis format that I usually use. This is because although Aecon pays a dividend, it doesn't have a strong history of increasing its dividend, so It would not rate very well in my normal tests.

About the company:

Here is Aecon's description of what they do, which can be found on their website here

Fundamentals:

Call it a bias or whatever you want, but I always like to look at dividends first. Aecon Group has payed out dividends for the last 12 months, equaling a total of $0.22. With the current stock price of $7.14 that gives us a yield of 3.08%, which is decent, and is a little more then one of their main competitors SNC-Lavalin Group Inc.(TSE: SNC) which has a current yield of 1.42%. One difference between them, is SNC has a long history of increasing its dividend payments, where ARE has cut its dividend in the last 12 months, and before that they didn't pay any dividends since 2003. Aecon, has been showing some great prospects though, and they look to be in a good position to continue to pay their dividends, and possibly increase them in the time to come. So, as much as I hate saying this, dividends aren't everything. Let's move on and take a look at some of their other numbers.

Aecon has a current P/E of 5.69 and an EPS of 1.26. The P/E shows that it is selling at a discount, but so is everything else right now so this is not unexpected at all. I calculate ARE's Graham number to be roughly $13.63, and this should make any Graham follower start to drool because this is almost double the current price of Aecon's stock. For anyone who does not know what the Graham Number is, in a nutshell it is a calculation that Benjamin Graham (the grandfather of value based investing) came up with to give you an idea whether a stock is undervalued. If the current share price is less then the Graham number then it is a good value pick.

Ok, so a brief look at some numbers shows us that they pay a decent dividend, and they are a very good value pick. How about their current business? well, with some digging around I came up with some very good news. Aecon has just reported its best quarter in all its history. Another milestone that they have hit is a backlog of about $1.5 billion in business, once again, its the most they have every had. Their pre-tax earnings are double of what they were a year ago., and their net income this past quarter has hit a new record at $23.1 million. Not only that, but they are sitting on about $220 million of non-restricted cash. All of these make Aecon look to be a very strong company despite the current financial situation. Going forward, Canada has shown a strong need to continue to upgrade our infrastructure (transportation, energy, social etc.) and these are the key businesses that Aecon works in. This is all good news for Aecon, and they look set to take advantage of this and fill these needs.

Technicals:

Chart Acquired at StockCharts.com

I love looking at technicals so I thought I'd throw in a chart for fun. The chart for ARE looks very positive, both the MACD and Slow Stochastic are showing the exact signs I like to see before making a purchase based on techincals. Although I would still be hesitant before jumping in right now. With the markets being as volatile a they are right now, predicting off of longer term charts can turn out to be hazardous. That being said, I do really like the looks of this chart.

Summary:

Even though the current economic situation is on unstable ground, Aecon runs a business that is far more recession proof then many of your other stock choices. Aecon is sitting on a very solid foundation of backlogs and new business, and they continue to grow their business at a very good pace. I think Aecon is a very good value pick, with a hint of a growth story to boot! In the end, I would say, wait for a little more solid footing to appear in the market as a whole, then jump in and take advantage of the fact that Aecon's stock has been undesrvingly battered with the rest of the market!

Full Disclosure: I currently do not own shares in Aecon Group Ltd. (TSE: ARE)

Disclaimer: Any information contained in the above article represents my opinions only, and should not be construed as personalized investment advice. I cannot assess, verify or guarantee the suitability of any particular investment to any particular situation and the reader of the article bears complete responsibility for its own investment research and should seek the advice of a qualified investment professional that provides individualized advice prior to making any investment decisions. All opinions expressed and information and data provided therein are subject to change without notice.