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Investors that hung on to shares of Aecon Group Inc. after Ottawa killed its deal last year to be taken over by a Chinese company are seeing some rewards for their patience.

Shares of the Toronto-based construction and infrastructure company have risen almost 30 per cent since the federal cabinet invoked national security threats to block the proposed $1.5-billion takeover by a Chinese state-owned enterprise in May, 2018.

The shares recently surpassed the $20.37 offer price made in October, 2017, by bidder CCCC International Holding Ltd. (CCCI), albeit briefly. On July 26, Aecon stock hit a 12-year high of $21.83 after the company reported strong second-quarter results that beat expectations, and a strong and diversified backlog.

The stock also appears to have been lifted by a belief that there will be more opportunities for the company after rival company SNC-Lavalin Group Inc. said it would exit fixed-price contracts. (Aecon management declined a request for an interview for this article.)

A handful of analysts upgraded the stock last month after the second-quarter results and the CEO’s comments.

“We believe Aecon is well-positioned to secure large, complex new awards in 2020, especially with competitor SNC-Lavalin retreating from fixed-price construction work,” Canaccord Genuity analyst Yuri Lynk said in a July 29 note, while increasing his target price to $27 from $26 and reiterating his “buy” recommendation.

Of the 11 analysts that cover Aecon, 10 have a “buy” and one a “hold.” The average price target is $25.14, according to Bloomberg data.

The stock has pulled back a bit since the postearnings surge amid general market volatility and concerns of a pending recession that could lead to a slowdown in the construction industry.

“[Aecon] is viewed as pretty economically sensitive, which is what’s holding it back a little bit,” Peter Hodson, founder and head of research at independent firm 5i Research Inc., told The Globe and Mail. Still, Mr. Hodson said he’s surprised the stock hasn’t done better, increasing only about 4 per cent so far this year.

“There are lots of things you can say about it that are good,” he said, including the big order backlog, the 3.2-per-cent dividend yield and its earnings growth.

The company reported revenue of $867-million for the three-month period ended June 30, a 15-per-cent increase from a year earlier and ahead of expectations of $770-million. Profit was $20.4-million or 31 cents per share versus a profit of $8.4-million or 13 cents a year ago. Analysts were expecting a profit of 23 cents.

Aecon could once again be a takeover target, Mr. Hodson said, since it was already prepared to be bought in August, 2017, when it hired financial advisers to explore a potential sale and then announced the deal with CCCI weeks later.

Apart from a recession-driven slowdown, another key risk is cost overruns in fixed-price contracts. “It has caused trouble for certain companies,” he said, but added the big backlog of $6.8-billion, which is up from $6.4-billion a year ago, helps to address some of that concern.

Bill Harris, a partner and a portfolio manager at Avenue Investment Management in Toronto, believes Aecon is a “relatively stable” company given it is in the construction sector “and we believe it is not going to go bankrupt, even in a recession.”

He doesn’t own the stock today and said it is the kind of company he considers buying in a recession. However, instead of the stock, he prefers to purchase the company’s bonds.

“Even when the stock has been completely creamed, we have bought the bonds because they have better risk-reward,” Mr. Harris said in an interview. “Historically we have owned the bonds and received equity-like returns,” of about 7 per cent to 8 per cent.

RBC Dominion Securities analyst Derek Spronck said in a July 26 note that Aecon is “a good way to play the Canadian infrastructure thematic,” and expects it to benefit from growth in private and public spending on construction and transportation projects across Canada. He recently increased his target to $22 from $20.

Aecon has a strong backlog but Mr. Spronck, who has “sector perform” (similar to hold) on Aecon, expressed some caution about project risk.

“The key will be whether anticipated top-line growth can translate into similar or greater earnings growth,” Mr. Spronck said in the note. “Execution becomes even more important as the backlog shifts towards fixed-price contracts. And while Aecon is benefiting from a ramp in new projects, we remain more cautious as project-related risk begins to grow into 2020-2021.”

Editor’s note: An incorrect consensus price target was earlier given.

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