Argan, Inc. AGX used its second-quarter fiscal 2027 earnings call to emphasize a strong natural gas project pipeline, expanding capacity and selectivity in new work. Management also tempered expectations for sequential revenue growth after a strong quarter.
The company reported fiscal second-quarter earnings of $3.76 per share, beating the Zacks Consensus Estimate of $2.68, a 40.30% surprise. Revenues of $383.98 million also topped the $297.80 million consensus estimate.
AGX Sees a Strong Gas Project Pipeline
Argan expects to add a handful of projects over the next seven to 15 months, with complex combined-cycle gas projects expected to dominate backlog in the near and midterm.
Backlog stood at $2.5 billion at quarter-end, down from $2.9 billion at the start of fiscal 2027. CEO and President David Watson said Argan generally records projects after receiving notice to proceed.
A Lake Street Capital Markets analyst asked about the pipeline. Watson said inbound demand remains significant and noted that more than $260 million of scope increases, smaller awards and intra-quarter work helped offset backlog burn. A CJS Securities analyst also asked about Texas data-center pushback, and the CEO said developer behavior had not changed.
Argan Tempers Near-Term Revenue Sequencing
Watson said fiscal 2027 revenues are still expected to be significantly above fiscal 2026, but he qualified the earlier expectation for sequential quarterly increases.
A JPMorgan analyst asked whether second-half revenues would continue growing from the fiscal second quarter. Watson said stronger-than-anticipated activity, especially in Power, pulled some revenues forward.
He added that fiscal third-quarter sequential growth may be limited. Industrial revenues are expected to decline from fiscal second-quarter levels for the remainder of the year.
AGX Explains Power Margin Strength
CFO and Treasurer Joshua Baugher said Power gross margin was 22.4% in the fiscal second quarter, while consolidated gross margin was 19.3%. He tied the Power result to project mix, contract mix and execution.
Baugher noted that consolidated margin stepped down from 25% in the fourth quarter of fiscal 2026 to 21% in first-quarter fiscal 2027 and 19.3% in the fiscal second quarter as newer projects moved through earlier construction stages.
In Q&A, CEO David Watson said future contracts should carry meaningful pricing reflecting inflation, labor costs, geography and contract risk. He stopped short of saying strong demand alone gives Argan higher pricing power.
Argan Works Through Industrial Margin Drag
CEO David Watson said Industrial revenues rose 111% year over year to $76 million, but the segment’s 7.3% gross margin was below management’s expectations.
Watson attributed the pressure to two non-data-center projects where updated completion economics weakened from initial expectations. Those jobs are expected to finish over the next six months.
He cautioned that Industrial margins may remain below historical norms for another quarter or two. Management continues to see opportunities in data centers, power-related industrial work and fabrication.
AGX Expands Capacity and Teledata Reach
CEO David Watson said Argan’s new North Carolina fabrication facility is on track for completion in the fiscal third quarter. It is initially aimed at a $125 million data center project involving thermal expansion and energy storage tanks.
Management expects the facility to contribute more than $10 million of quarterly Industrial revenues later this year and into next year while providing capacity for follow-on opportunities.
Argan also closed the ValCor Communications acquisition. Watson said organic growth, ValCor synergies and the Teledata strategy could potentially double segment revenues from fiscal 2026 levels and support EBITDA growth, while acknowledging integration and execution risks.
Argan Stays Selective as Demand Broadens
CEO David Watson’s closing message centered on execution discipline. Argan expects natural gas projects to dominate its near- and mid-term Power mix, while retaining renewable capabilities and expanding Industrial and Teledata capacity.
Management also framed the balance sheet as a competitive advantage for staffing, bonding, organic investment and selective M&A. Argan ended the quarter with about $1 billion of cash and investments, $440 million of net liquidity and no debt.
AGX’s Zacks Signals Remain Mixed
AGX currently carries a Zacks Rank #3 (Hold). Its Growth, Momentum and VGM Score are all A, while its Value Score is D, indicating stronger growth and momentum characteristics than value characteristics under the Zacks Style Scores framework.
The Style Scores complement the Zacks Rank, with the strongest combinations generally pairing A or B scores with Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks. AGX’s #3 ranking keeps the overall signal more measured, and the Zacks Rank can change as earnings estimates are revised following the just-reported results.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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Argan, Inc. (AGX): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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