Can Peab (OM:PEAB B) Stay Below Fair Value As New Contracts Lift Its Backlog?

Peab (OM:PEAB B) has picked up fresh attention after securing an eight year water and sewage framework contract in Örnsköldsvik and a SEK 111 million central kitchen project in Torsby, alongside planned executive succession.

These contract wins and the planned management succession come against a backdrop of strengthening momentum in Peab’s stock, with a 30 day share price return of 5.73% contributing to a 16.39% year to date gain and a 42.55% one year total shareholder return.

Scan how Peab compares with other construction and infrastructure stocks, which show resilient order books and solid balance sheets, using our curated list of solid balance sheet and fundamentals (438 results).

Peab now has healthy contract visibility and a strong share price run behind it. The next step is to see whether that strength is already reflected in the current valuation or whether there is still a margin of safety.

Preferred P/E of 13.5x on Peab: Is it justified?

Peab is currently trading on a P/E of 13.5x, and based on Simply Wall St estimates it is trading at a 41.8% discount to an assessed fair value while still reflecting a strong share price run.

The P/E multiple compares the current SEK100.5 share price to Peab's earnings per share. For construction and civil engineering groups with established earnings, investors often use P/E to gauge how much they are paying for current profitability.

Peab's P/E of 13.5x sits below the European construction industry average of 15.2x and below the estimated fair P/E of 20.5x. That indicates the market valuation is at a lower earnings multiple than both peers and the level suggested by the fair value model.

Explore the SWS fair ratio view for Peab to see how that earnings multiple compares with what the model suggests investors might eventually pay Explore the SWS fair ratio for Peab.

Result: Price-to-earnings of 13.5x (UNDERVALUED)

However, Peab still faces risks if construction demand weakens in its core Nordic markets or if margins come under pressure across its multi-segment operations.

Find out about the key risks to this Peab narrative.

Another view on Peab using our DCF model

The P/E ratio presents Peab as undervalued, and the SWS DCF model points in the same direction but on a different scale. At SEK100.5, the stock is trading below an estimated future cash flow value of SEK172.65. That is a wide gap. The question is whether the cash flows will materialise as expected.

Look into how the SWS DCF model arrives at its fair value Look into how the SWS DCF model arrives at its fair value..

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Peab for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 257 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Conflicted about what Peab’s recent contracts and valuation signals really mean for you as an investor? Take a closer look at the balance of risks and potential rewards by reviewing the 4 key rewards and 2 important warning signs.

Looking for more investment ideas beyond Peab?

If you are serious about building a stronger portfolio, do not stop with Peab. Use focused stock lists to spot opportunities that match your goals and risk comfort.

• Target resilient balance sheets by scanning companies that appear in our list of solid balance sheet and fundamentals (438 results).
• Hunt for quality at a discount with the help of our curated 257 high quality undervalued stocks.
• Strengthen your income stream by reviewing companies highlighted as 419 dividend fortresses.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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