Granite Construction (GVA)

Construction and construction materials company Granite Construction (NYSE:GVA) fell short of the markets revenue expectations in Q3 CY2025, but sales rose 12.4% year on year to $1.43 billion. The company’s full-year revenue guidance of $4.4 billion at the midpoint came in 1% below analysts’ estimates. Its non-GAAP profit of $2.70 per share was 7.9% above analysts’ consensus estimates.

Company Overview

Having played a role in the construction of the Hoover Dam, Granite Construction (NYSE:GVA) is a provider of infrastructure solutions for roads, bridges, and other projects.

Construction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.

Other companies competing in this industry include Flour (NYSE:FLR), AECON (NYSE:ACM), and private company Kiewit.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Granite Construction’s sales grew at a tepid 5.9% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Granite Construction.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Granite Construction’s annualized revenue growth of 12.2% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

This quarter, Granite Construction’s revenue grew by 12.4% year on year to $1.43 billion but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 14.8% over the next 12 months, an improvement versus the last two years. This projection is commendable and indicates its newer products and services will spur better top-line performance.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

Granite Construction has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 12.2% gross margin over the last five years. Said differently, Granite Construction had to pay a chunky $87.79 to its suppliers for every $100 in revenue.

Granite Construction’s gross profit margin came in at 18.2% this quarter, marking a 2.3 percentage point increase from 15.9% in the same quarter last year. Granite Construction’s full-year margin has also been trending up over the past 12 months, increasing by 3.4 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Granite Construction was profitable over the last five years but held back by its large cost base. Its average operating margin of 3.2% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Granite Construction’s operating margin rose by 6 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Granite Construction generated an operating margin profit margin of 10%, up 1.8 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Granite Construction’s EPS grew at an astounding 30.9% compounded annual growth rate over the last five years, higher than its 5.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Granite Construction’s earnings to better understand the drivers of its performance. As we mentioned earlier, Granite Construction’s operating margin expanded by 6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Granite Construction, its two-year annual EPS growth of 43% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Granite Construction reported adjusted EPS of $2.70, up from $2.05 in the same quarter last year. This print beat analysts’ estimates by 7.9%. Over the next 12 months, Wall Street expects Granite Construction’s full-year EPS of $5.87 to grow 2%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Granite Construction has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.9%, lousy for an industrials business.

Taking a step back, an encouraging sign is that Granite Construction’s margin expanded by 5.3 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Granite Construction’s free cash flow clocked in at $257.5 million in Q3, equivalent to a 18% margin. This cash profitability was in line with the comparable period last year and above its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Granite Construction has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.5%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Granite Construction’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

Granite Construction reported $547.2 million of cash and $1.46 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $504.6 million of EBITDA over the last 12 months, we view Granite Construction’s 1.8× net-debt-to-EBITDA ratio as safe. We also see its $2.40 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Granite Construction blew past analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its revenue missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded up 3.6% to $106.40 immediately following the results.

Updated: December 4, 2025 at 10:27 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

There are definitely a lot of things to like about Granite Construction. Although its revenue growth was uninspiring over the last five years, its growth over the next 12 months is expected to be higher. And while Granite Construction’s low gross margins indicate some combination of competitive pressures and high production costs, its rising cash profitability gives it more optionality. On top of that, its expanding operating margin shows the business has become more efficient.

Granite Construction’s P/E ratio based on the next 12 months is 17.9x. Looking at the industrials landscape right now, Granite Construction trades at a pretty interesting price. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $130.20 on the company (compared to the current share price of $108.28), implying they see 20.2% upside in buying Granite Construction in the short term.