Last Update 27 Jan 26

AGX: Texas Gas Power Backlog And Execution Risks Will Shape Future Returns

Narrative Update on Argan

Analysts have lifted their price target for Argan to $397, citing fresh Buy initiations and upgrades that describe the company as a pure-play way to gain exposure to combined cycle gas power generation and a growing backlog of gas-fired projects in Texas.

Analyst Commentary

Recent research on Argan focuses on its role as a pure-play contractor tied to combined cycle and gas-fired power projects, particularly in Texas, and what that could mean for execution risk and valuation if the current project pipeline plays out as expected.

Bullish Takeaways

Bullish analysts see Argan as one of the cleanest ways to get exposure to combined cycle gas power generation, given its position as a sole public pure-play specialty contractor in this niche.
The new project wins, including an 860MW gas-fired plant expected to enter the Q3 2026 backlog, are viewed as reinforcing the backlog story that underpins higher price targets such as US$397.
Some bullish analysts highlight Argan's continued focus on a strong balance sheet, which they view as important support for handling large contracts and potential lumpiness in project timing.
There is a view that localized scale in Texas and the ability to use regional cross staffing can help the company work through prior staffing constraints. Bullish analysts connect this to upside potential in future revenue and EBITDA expectations that they have published.

Bearish Takeaways

Bearish analysts, or those more cautious, point to staffing limitations mentioned previously by management as an ongoing execution risk, even if some of that is being addressed with cross staffing.
The growing reliance on gas generation projects in Texas concentrates exposure in a single theme and region, which could weigh on valuation if project timing slips or local market conditions change.
The higher price targets in the US$369 to US$397 range assume that large gas generation awards flow into backlog and convert as planned. Any delays or cost overruns on projects like the 860MW plant could challenge those expectations.
With expectations already framed around strong revenue and EBITDA contributions from gas generation through 2027 in some models, there is less room for error if new awards slow or if competition for large contracts intensifies.

What’s in the News

Completion of share repurchase program with a total of 2,760,294 shares bought back since the June 24, 2020 authorization, representing 18.83% of shares for US$110.21 million, and no shares repurchased from August 1, 2025 to October 31, 2025 (Key Developments).
Management reiterates interest in M&A, with the CEO highlighting that the company is evaluating deals that could add to current capabilities, expand the geographic footprint and support long term growth and capital allocation goals (Key Developments).
Gemma Power Systems secures an engineering, procurement and construction contract with full notice to proceed for an approximately 860 MW natural gas fired power plant in the ERCOT market, with the full contract value expected in the project backlog for the quarter ended October 31, 2025 (Key Developments).
Gemma receives full notice to proceed on an EPC contract for the 1,350 MW CPV Basin Ranch Energy Center in Ward County, Texas, a combined cycle plant designed with an option for carbon capture capability and a scheduled project completion date in 2028 (Key Developments).

Valuation Changes

Fair Value: Modelled fair value remains unchanged at US$361.00 per share, so the headline valuation output is stable.
Discount Rate: The discount rate has risen slightly from 8.41% to 8.44%, a modest uptick in the required return used in the model.
Revenue Growth: The revenue growth assumption is effectively unchanged at about 15.79%, so the model continues to use the same growth outlook.
Net Profit Margin: The net profit margin assumption is effectively unchanged at about 11.49%, indicating no shift in modelled profitability.
Future P/E: The future P/E input edges up slightly from 39.47x to 39.51x, reflecting only a very small adjustment in the earnings multiple assumption.

Diversified project backlog and strong industry trends position Argan for multi-year revenue and margin growth, with expanded capabilities in energy, water, and recycling sectors.
Robust financial health enables strategic investments and project execution advantages, supporting continued earnings growth and improved long-term profitability.
Heavy dependence on large gas power projects and centralized infrastructure exposes Argan to significant risks from sector decarbonization, project volatility, and shifts in regulatory or market trends.

Catalysts

About Argan

Through its subsidiaries, provides engineering, procurement, construction, commissioning, maintenance, project development, and technical consulting services to the power generation market in the United States, Republic of Ireland, and the United Kingdom.What are the underlying business or industry changes driving this perspective?

The aging North American power infrastructure and rising electricity demand-driven by widespread electrification and the proliferation of AI data centers-are resulting in record project backlog and robust pipeline visibility for Argan. This is likely to drive sustained top-line revenue growth for several years.
Strong secular investment momentum in grid modernization and the ongoing energy transition is accelerating the need for new construction of both natural gas-fired and renewable energy facilities. Argan's diversified capabilities position it to capitalize on this trend, potentially expanding its addressable market and supporting revenue growth.
Record backlog and continued project wins across gas, renewables, water treatment, and recycling plants provide multi-year revenue visibility, indicating potential for increased operating leverage and higher gross margins as larger projects are executed successfully.
Argan's reputation for on-time, on-budget project delivery and its expanded workforce enable it to handle more and larger projects than competitors, which is likely to support earnings growth and improve net margin stability over time.
The company's strong balance sheet and consistently high net cash position allow it to pursue strategic M&A and invest in team expansion, enabling further scale and resilience, which can enhance earnings consistency and long-term profitability.

Argan Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Argan's revenue will grow by 18.1% annually over the next 3 years.
Analysts assume that profit margins will shrink from 12.7% today to 9.4% in 3 years time.
Analysts expect earnings to reach $142.0 million (and earnings per share of $9.95) by about September 2028, up from $117.2 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 28.6x on those 2028 earnings, up from 25.6x today. This future PE is lower than the current PE for the US Construction industry at 34.7x.
Analysts expect the number of shares outstanding to grow by 2.31% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.05%, as per the Simply Wall St company report.

Argan Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Argan's backlog is heavily weighted toward natural gas-fired projects (61%), and management expects this trend to continue, exposing the company to long-term risk if the energy sector accelerates its transition to renewables and shifts away from gas plants; this could reduce project opportunities and future revenue over time.
The company relies on a relatively small universe of large, complex EPC (Engineering, Procurement, Construction) projects, meaning any major project delays, cost overruns, or cancellations could lead to significant variability or declines in quarterly and annual earnings and net margins.
While gross margins have recently improved due to strong project execution, management notes the margins are "lumpy" and cautions that sustainability at current levels is uncertain, particularly if competitive pressures intensify or project execution challenges arise; this may introduce volatility or downward pressure on long-term profitability.
Despite record backlog and current industry demand, Argan's growth is tied to the cyclical nature of infrastructure and power-plant spending, which depends on favorable macroeconomic and regulatory conditions; shifts in government budgets, permitting, or utility investment cycles could cause unpredictable swings in revenue and net income.
Although Argan is expanding its workforce and capacity, its business model remains concentrated in large-scale centralized power projects; a secular trend toward distributed generation, modular energy solutions, or more rapid decarbonization efforts could erode its core markets and lead to long-run revenue declines.

Valuation

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

The analysts have a consensus price target of $230.333 for Argan based on their expectations of its future earnings growth, profit margins and other risk factors.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $142.0 million, and it would be trading on a PE ratio of 28.6x, assuming you use a discount rate of 8.1%.
Given the current share price of $217.41, the analyst price target of $230.33 is 5.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
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.

Power Demand Cycle And Project Backlog Will Drive Multi-Year Expansion