ASX engineering stocks set to deliver double-digit earnings growth this reporting season

UBS is forecasting double-digit earnings growth for the ASX engineering and construction sector heading into August reporting season, significantly outpacing the broader market.

The sector is expected to deliver double-digit EPS growth in both FY25 and FY26, well above the ASX 200's projected -2% and +5% respectively. This outperformance is underpinned by increasing Australian infrastructure investment and rising global energy demand, creating a favourable backdrop for sector participants.

Valuation Discount Creates Opportunity

The sector trades at a forward price-to-earnings ratio of 20x, a slight discount to the broader S&P/ASX 200 Industrials (ex-financials) at 22x.

Downer and Monadelphous have been standout performers year-to-date, gaining 30% and 31% respectively. This likely reflects investor preference for companies with domestic exposure over those with significant US operations, given ongoing geopolitical tensions and tariff uncertainties.

UBS maintains buy ratings on four key players – Worley, SGH, ALS, and Cleanaway – each offering distinct investment propositions for the year ahead. Below are UBS' key FY25 earnings and FY26 guidance expectations.

Worley (ASX: WOR)

• FY25 estimates: EBITA of $829 million (10% growth), EBITA margin excluding procurement of 8.5% (up from 7.9% in FY24), NPAT of $407 million, total dividend of 50 cents per share

• FY26 guidance: Expected 5% EBITA growth, with CP2 LNG project now set to support FY27 earnings rather than FY26

• The CP2 LNG project could drive approximately 50% uplift in work-in-hand upon final investment decision

• Results due: 27 August

SGH (ASX: SGH)

• FY25 estimates: Revenue of $10.65 billion, underlying NPAT of $898 million and full-year dividend of 60 cents per share

• FY26 guidance: Forecast EBIT growth of 6%, with deleveraging target of 2.0 times by year-end

• Strong cash flows expected to support rapid debt reduction from current 2.2 times leverage

• Results due: 12 August

ALS (ASX: ALQ)

• FY25 estimates: Targeting 5-7% group organic revenue growth, driven by commodities momentum (9% growth) and life sciences (4% organic growth)

• Geochemistry volumes expected to grow 10%, benefiting from exploration activity recovery

• AGM scheduled for 30 July will provide key trading updates

• UNPAT forecast: $359 million for FY26

Cleanaway (ASX: CWY)

• FY25 estimates: Revenue of $3.38 billion and underlying NPAT of $202 million, full-year dividend of 6 cents per share.

• FY26 guidance: Revenue of $3.85 billion and underlying NPAT of $249 million, supported by Contract Resources acquisition and cost optimisation programs

• Efficiency programs remain critical for meeting growth targets after 1H25 delays

• Results due: 20 August

Neutral-Rated Stocks

UBS maintains neutral ratings on Downer and Monadelphous, reflecting more measured growth expectations despite solid fundamentals.

Downer (ASX: DOW)

• FY25 estimates: EBITA of $457 million, UNPATA guidance of $265-280 million (31% growth), Group EBITA margin expansion of 80 basis points to 4.0%

• FY26 guidance: Expected to provide UNPATA guidance with UBS forecasting 20% growth to $329 million

• Cost-out program expanded to $200 million (from $175 million) with $90 million in FY25 benefits and $60 million in FY26

• Results due: 21 August

Monadelphous (ASX: MND)

• FY25 estimates: Revenue growth of 9% (high single-digit guidance), EBITDA of $151 million, EBITDA margin improving to 6.9% (from 6.3% in FY24)

• FY26 guidance: Revenue growth of 4% to $2.3 billion, supported by elevated resources and energy sector demand

• Construction segment driving growth with 27% revenue increase, while Maintenance segment faces -2% growth due to cycling high energy turnaround activity

• Results due: 19 August

Key Reporting Season Themes

Investors should focus on several themes during the upcoming reporting season:

Infrastructure Investment: Companies with domestic infrastructure exposure, particularly SGH and Downer, are well-positioned to benefit from continued government spending commitments.

Energy Transition: Worley's exposure to global energy projects, particularly LNG developments, positions it to capitalise on increasing energy infrastructure investment.

Operational Efficiency: Cost optimisation programs at Cleanaway and Downer will be closely watched, as these initiatives underpin FY26 growth expectations.

Commodity Cycle: ALS and Monadelphous stand to benefit from an expected upturn in exploration and mining activity, driven by record gold prices and resource sector investment.

The bottom line: The sector offers a resilient earnings profile at attractive valuations for investors seeking exposure to Australia's infrastructure buildout and global energy transition themes.