Rebuilding Stronger: 3 Stocks Driving Infrastructure Recovery

Key Points

• After one of the worst wildfire catastrophes, destroying more than 16,000 structures across 50,000 acres of land and causing 29 deaths, the cleanup and rebuilding efforts will require many companies.
• Heavy machinery will be required to clean debris, prepare the land, and be used in construction projects to rebuild houses and buildings.
• Engineers with experience in disaster recovery will be called in to assist with infrastructure rebuilding projects. 

The Los Angeles wildfires are estimated to have caused between $95 billion to $164 billion in property damage, with insured losses reaching $75 billion. The cleanup and rebuilding effort will take years. Newsweek reports that developers want to “Turbocharge” building efforts. California’s endless red tape when it comes to building permits has been a bottleneck for years. Governor Gavin Newsom has assured residents that he will suspend the California Environmental Quality Act and the California Coastal Act so rebuilding can happen quickly. Here are three stocks that will gain from the rebuilding efforts.

Caterpillar: Heavy Machinery Is a Given

As the leading construction sector manufacturer of construction and mining equipment, Caterpillar Inc. NYSE: CAT builds the heavy machinery required for reconstruction and development. From bulldozers, loaders, and compactors to excavators, Caterpillar’s heavy machinery is indispensable. The rebuilding efforts would provide a much-needed bump for its business after a slow 2024.

A Soft 2024 Leaves Little Optimism For 2025

Construction in the United States is believed to have peaked and is still in the normalization phase.

The U.S. manufacturing PMI continues to stay below 50 as building permits remain relatively low. Caterpillar posted the fourth quarter of 2024 EPS of $5.14, beating consensus estimates by 12 cents. However, revenues fell 5.1% YoY, $16.2 billion, missing consensus estimates of $16.61 billion.

Its construction segment revenues fell 8% YoY to $6 billion. The resources segment experienced a 9% YoY decrease to $2.96 billion.

Energy and transportation revenue was flat at $7.65 billion. Full-year 2024 sales were down 3%YoY to $64.8 billion, primarily from lower sales of equipment to end users.

Deere: Landscaping and Preparation for the Rebuilding Equipment

Similar to the role of Caterpillar, Deere & Company Inc. NYSE: DE would also use its agricultural and construction equipment during the cleanup and rebuilding process. Deere’s bulldozers, skid steers, and excavators are essential for removing burned trees and vegetation and clearing debris to prepare the land for rebuilding. Deere’s forestry equipment can be used to remove hazardous trees, salvage timber, and replant forests.

Double-Digit Drops Across the Board, But Still Profitable

Deere posted Q4 2024 EPS of $4.55, firmly beat consensus analyst estimates by 68 cents. However, revenues plunged 32.8% YoY to $9.28 billion, beating $9.20 billion consensus estimates.

Full-year 2024 metrics were very gloomy on a YoY basis. Full-year revenues fell 16% YoY to $51.72 billion. Equipment net sales fell 19% YoY to $44.76 billion. Net income fell 30% YoY to $7.1 billion. Diluted EPS fell 26% YoY to $25.62. The company's margins improved by 700 bps since 2020, reaching over 18%, demonstrating solid fiscal discipline. Demand levels peaked in 2023 as headwinds developed through 2024. But Deere anticipated and managed accordingly.

IR Director Josh Beal commented, “Overall, the decisive actions we took this year resulted in a solid finish. We closed the fiscal year 2024, delivering strong returns while successfully reducing new field inventory levels, ultimately positioning the business to effectively execute what are expected to be challenging market conditions in 2025.”

Fluor: Disaster Engineers to Manage Mass Rebuilding Efforts

The name may not sound familiar, but the disasters that played a significant role during the reconstruction were Hurricane Katrina, Hurricane Maria, Hurricane Rita, and rebuilding after the Iraqi War. Fluor Co. NYSE: FLR is a global engineering, procuring, and construction (EPC) firm providing energy, mission, and urban solutions worldwide. They were recently selected by the U.S. Federal Emergency Management Agency (FEMA) to provide recovery services for the East Zone for four one-year periods valued up to $525.6 million.

Uncertain Outlook for 2025 Due to Market Uncertainty

Fluor reported Q3 2024 EPS of 51 cents, missing consensus estimates by 25 cents. Revenues rose 3.31% to $4.09 billion but still missed consensus estimates by $664.08 million.

The company won $2.7 billion in awards in the quarter for an ending consolidated backlog of $31.3 billion, up from $26 billion in the year-ago period. Earnings came in less than expected due to certain project delays and cancellations.

Fluor CEO David Constable didn’t inspire much confidence when they pulled forward guidance, “We are not providing forward-looking guidance for U.S. GAAP net earnings or U.S. GAAP earnings per share, or a quantitative reconciliation of adjusted EBITDA or adjusted EPS guidance, because we are unable to predict with reasonable certainty all of the components required to provide such reconciliation without unreasonable efforts,”