KNF: Construction Recovery And Backlog Will Drive Long-Term Upside Potential

Analysts have modestly reduced their price target on Knife River to $96.80 from about $98.22, reflecting a slightly lower fair value and profit margin outlook, even as they acknowledge resilient demand, a solid $1.3B backlog and sector wide expectations for a multi year construction recovery.

Analyst Commentary

Recent Street research presents a mixed but constructive view on Knife River, with analysts balancing near term execution risks against a solid backlog and longer term recovery potential in U.S. construction and infrastructure spending.

Bullish Takeaways

Bullish analysts point to Knife River's $1.3B backlog as a key support for medium term revenue visibility, arguing this underpins the stock's valuation even through a softer near term demand environment.
Exposure to U.S. infrastructure and building materials is seen as a structural growth driver, with some analysts expecting Knife River to benefit as construction activity re accelerates into 2026 and 2027.
Despite trimmed targets, positive ratings reflect confidence in management's ability to navigate regional funding volatility and weather related disruptions while maintaining margin discipline.
Knife River is viewed as well positioned to capture upside from any earlier than expected recovery in residential and home improvement related demand, which could justify multiple expansion from current levels.

Bearish Takeaways

Bearish analysts highlight limited near term upside, citing expectations for a muted Q3 given funding challenges in key markets and adverse weather that could constrain volume and profitability.
The reduced price targets signal concerns that prior growth and margin assumptions were too optimistic, leading to a recalibration of fair value despite solid underlying demand in several regions.
Visibility on large scale transportation funding remains uneven, with the downsizing of certain regional packages raising questions about the pace and magnitude of project awards over the next 12 to 18 months.
Some analysts are cautious that the broader construction recovery may not materialize until late 2026, which could delay the realization of Knife River's full earnings power and cap near term multiple expansion.

What's in the News

Knife River secured a major role as asphalt and paving subcontractor on the $671 million "Big 6" State Highway 6 improvement project in the Bryan/College Station, Texas market, with a $112 million contract to supply about 928,000 tons of hot mix asphalt and related materials through 2030 (Key Developments).
The Big 6 project will reconstruct and expand a 12 mile stretch of State Highway 6 from four lanes to six. It is expected to improve commuter capacity, freight movement, emergency evacuation routes, and add shared paths for bicycles and pedestrians in a high growth corridor where Knife River can also supply additional aggregates and base materials as needed (Key Developments).
Knife River narrowed its 2025 consolidated revenue guidance to a range of $3.10 billion to $3.15 billion and net income to $140 million to $160.5 million, indicating increased visibility into near term performance (Key Developments).

Valuation Changes

Fair Value: reduced modestly from $98.22 to $96.80, indicating a slightly lower assessed intrinsic value per share.
Discount Rate: edged down marginally from 8.53% to 8.51%, reflecting a slightly lower required return in the valuation model.
Revenue Growth: increased slightly from 6.22% to 6.40% annually, implying a modestly more optimistic top line outlook.
Net Profit Margin: trimmed from 6.77% to 6.48%, signaling a moderately lower expectation for future profitability.
Future P/E: nudged higher from 28.41x to 29.09x, suggesting a small increase in the multiple applied to Knife River's forward earnings.

Exposure to public infrastructure projects and strategic acquisitions position the company for sustained revenue growth and improved market penetration.
Margin expansion is driven by dynamic pricing, operational excellence, vertical integration, and emphasis on eco-efficient, innovative products.
Dependence on public funding, regional risks, disruptive weather, rising costs, and acquisition-driven debt collectively threaten Knife River's margins, earnings growth, and financial flexibility.

Catalysts

About Knife River

Provides aggregates-led construction materials and contracting services in the United States.What are the underlying business or industry changes driving this perspective?

Knife River's record $1.3 billion backlog and exposure to public infrastructure projects-supported by robust, multiyear federal and state Department of Transportation funding (including 60% of IIJA funds still to be spent)-positions the company for strong, sustained revenue growth well into 2026 and beyond.
Intensifying dynamic pricing initiatives across all product lines and continued migration toward high-margin aggregates, supported by recent acquisitions, are expected to boost average selling prices and improve EBITDA margins in the coming quarters.
Ongoing geographic expansion through targeted, aggregates-led acquisitions (such as Strata, Kraemer, and High Desert) increases Knife River's market penetration and addressable customer base, directly enhancing revenue and earnings potential.
Investment in operational excellence programs (PIT Crews) and vertical integration, combined with digitization and process improvements, is expected to reduce input costs and drive margin expansion, positively impacting net margins and long-term profitability.
Growing demand for sustainable construction, combined with the company's emphasis on eco-efficient manufacturing and new product development, provides potential for premium pricing, differentiation, and increased contract wins, offering upside to revenue and EBIT growth over the long term.

Knife River Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Knife River's revenue will grow by 7.4% annually over the next 3 years.
Analysts assume that profit margins will increase from 5.2% today to 7.2% in 3 years time.
Analysts expect earnings to reach $264.4 million (and earnings per share of $4.0) by about September 2028, up from $153.3 million today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.7x on those 2028 earnings, up from 29.2x today. This future PE is greater than the current PE for the US Basic Materials industry at 24.1x.
Analysts expect the number of shares outstanding to grow by 0.09% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.14%, as per the Simply Wall St company report.

Knife River Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Knife River's significant exposure to the Oregon market, which faces persistent infrastructure funding delays and legislative impasse, poses ongoing risk to both revenue and margin contribution; continued softness or lack of new DOT funding in Oregon could further compress consolidated EBITDA and earnings in future periods.
Extreme weather events, such as heavy rainfall and flooding in key regions (e.g., Montana, Wyoming, Texas), have demonstrably disrupted operations, delayed projects, and increased per-unit production costs; as climate volatility increases, the company faces persistent operational risks and is likely to see ongoing margin pressure and revenue volatility.
The company's strategy of pursuing bolt-on acquisitions and rapid expansion has driven up overhead and integration costs (notably a step up in SG&A and increased debt/leverage after acquiring Strata and others); any slowdown in the acquisition pipeline or integration missteps could erode expected margin improvement and strain net earnings and balance sheet flexibility.
Heavy reliance on sustained, record-setting public infrastructure funding (with 90% of current backlog tied to public DOT budgets) exposes Knife River to the risk of cyclical pullbacks, non-renewal, or diversion of funding-especially if state or federal politics shift-potentially reducing backlog, compressing revenue growth, and impacting long-term profitability.
Rising input costs in trucking, labor, and energy (mid-single digit increases year-over-year) combined with lower fixed cost absorption due to weather or localized volume declines could persistently pressure operating margins, especially as production mix shifts away from historically higher-margin markets like Oregon, constraining overall earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $110.778 for Knife River based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $131.0, and the most bearish reporting a price target of just $97.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.6 billion, earnings will come to $264.4 million, and it would be trading on a PE ratio of 29.7x, assuming you use a discount rate of 8.1%.
Given the current share price of $78.88, the analyst price target of $110.78 is 28.8% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

KNF: Regional Infrastructure Recovery And Backlog Will Drive Upside Into 2025