Advanced Drainage Systems to Buy Orenco, Expand in Wastewater

Advanced Drainage Systems, Inc. or ADS WMS, a leader in water management solutions, has taken a significant step that promises to strengthen its position in the wastewater treatment market. Through its wholly-owned subsidiary, Infiltrator Water Technologies, ADS is set to acquire Orenco Systems, Inc., a leading manufacturer of advanced onsite septic wastewater treatment products. This strategic acquisition is expected to close in the third quarter of ADS's fiscal 2025, subject to standard closing conditions.

Orenco's addition to the ADS portfolio is a strategic move to accelerate growth in the advanced wastewater treatment sector. With a fragmented market landscape, this acquisition opens new avenues for ADS to expand its presence in both residential and non-residential segments, capitalizing on regulatory tailwinds driving demand.

Synergies and Innovation at the Forefront

Combining the expertise of Orenco and Infiltrator, ADS is set to leverage significant synergies in engineering and product development. This collaboration is poised to drive innovation, ensuring that the company remains at the forefront of the rapidly evolving wastewater treatment industry.

The merger will also enhance operational efficiencies, as the combined teams focus on scalability and margin expansion, a hallmark of Infiltrator's track record. The broader sales force and distribution network will enable ADS to penetrate deeper into the growing market segment, providing customers with an even more comprehensive suite of solutions.

Accelerating Growth in a Fragmented Market

The acquisition of Orenco positions WMS to capitalize on the rapidly growing and fragmented onsite septic wastewater market. This segment has gained momentum due to regulatory changes and increasing demand for efficient wastewater treatment solutions. By bringing Orenco under its umbrella, WMS is poised to expand its reach and accelerate growth in this niche yet vital industry.

Share Price Performance

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ADS stock has gained 7% in the year-to-date period compared with the Zacks Building Products - Miscellaneous industry's 10.9% growth. Although shares have underperformed its industry, earnings estimates for the current year have moved north to $7.18 from $7.17 per share over the past 60 days. This depicts analysts' optimism over the company's prospects. The estimated figure indicates 12.4% year-over-year growth.

Notably, the company reported strong fiscal first-quarter 2025 results, with revenue growth driven by an 8% increase in Allied product sales and a 6% rise in Infiltrator business sales. Domestic construction markets saw a 6% overall revenue increase, fueled by volume growth across non-residential, residential, and infrastructure sectors. The company achieved an adjusted EBITDA margin of 33.8%, one of its highest quarterly margins, reflecting strong profitability due to better fixed cost absorption and strategic investments in safety, capacity, and efficiency.

The acquisition of Orenco by ADS marks a significant step in ADS's strategic growth plan, enhancing its leadership in the wastewater treatment sector. With a focus on innovation, operational excellence, and environmental responsibility, ADS is well-equipped to capitalize on new opportunities in this expanding market.

Zacks Rank & Other Key Picks

Currently, ADS carries a Zacks Rank #2 (Buy).

Here are some other top-ranked stocks from the Zacks Construction sector:

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The Zacks Consensus Estimate for HWM's 2024 sales and earnings per share indicates a rise of 12.6% and 39.1%, respectively, from the prior-year levels.

Sterling Infrastructure, Inc. STRL presently sports a Zacks Rank #1. Sterling Infrastructure has a trailing four-quarter earnings surprise of 17.4%, on average. Shares of the company have gained 26.6% YTD.

The Zacks Consensus Estimate for STRL's 2024 sales and EPS indicates a rise of 9.7% and 26.6%, respectively, from the prior-year levels.

Quanta Services Inc. PWR presently carries a Zacks Rank #2. PWR has a trailing four-quarter earnings surprise of 4.6%, on average. Shares of the company have gained 23.6% YTD.

The Zacks Consensus Estimate for PWR's 2024 sales and EPS indicates a rise of 14.2% and 18.3%, respectively, from the prior-year levels.

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