William Blair initiated research coverage of three companies that provide consulting services in the sustainability services industry. These include NV5 Global, Inc. (NVEE $95.47), ICF International, Inc. (ICFI $129.24), and Tetra Tech, Inc. (TTEK $154.72).
Analyst Tim Mulrooney published a report on the sustainability services industry in conjunction with the initiations. “As the scarcity of a resource increases, the quality of that resource tends to decline,” Mulrooney said. “This is almost universally true, whether we are talking about harder-to-reach oil, mined ore grades, or potable water. Under these conditions, society will ascribe more value to solutions that can optimize resource utilization. In our report, we highlight several categories of sustainability services business models that improve resource optimization. These include companies that can, in a cost-effective manner, help businesses and consumers increase energy efficiency and resilience, more effectively manage natural resources, and enable higher reuse and monetization of waste streams.”
The companies now under coverage focus on providing consulting services within the sustainability services industry, with Mulrooney remarking that “many of their core service offerings align with the solutions and economic themes we expect to grow in importance over the coming years”. Mulrooney added, “NV5 Global will benefit from an inflection in demand for the company’s core consulting services around geospatial services, utilities services, clean energy services, and mission-critical work primarily centered on data centers. A larger portion of the company’s revenue will come from traditional services that help provide efficient and resilient infrastructure and energy and also from recent targeted service additions such as geospatial and mission-critical work, all of which provide margin-enhancement opportunities.”
Mulrooney continued, “ICF International, over the last several years, has made a purposeful effort to realign its service portfolio around key growth areas including IT modernization, commercial energy, disaster response and mitigation, and climate and infrastructure services, many of which will benefit from sustainability tailwinds. We estimate these key growth areas represent roughly 65% of total revenues today. Given the priority placed in these areas and the secular tailwinds in their underlying markets, we expect these four areas to represent more than 80% of total revenue over the next three to five years.”
Lastly, Mulrooney added, “while it is difficult to group Tetra Tech’s wide service offering into specific categories, we have identified five service areas that we expect will see outsized growth, driven by several different sustainability tailwinds. These include renewable energy, federal digital analytics, digital water, high-performance buildings, and emerging contaminants. Collectively, we estimate these service areas will represent roughly 25% of the company’s 2023 pro forma revenue. Given strong growth in these service areas and their expanding market opportunity sizes, we expect they will represent over 40% of the company’s business over the next three to five years.”
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