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3 engineering companies to watch

With mining being a major part of a resource-rich country like Australia, engineering companies play an important role for the nation. Being connected to a cyclical industry like mining means engineering stocks will go up and down with the booms and busts, so you should be looking for quality stocks that perform well in boom times and are strong enough to survive the down times.  Here are three companies you should know.

Cardno Limited (ASX: CDD) operates in Australia, New Zealand, the UK and Africa, yet gets about 53.5% of its revenue from the US. It does infrastructure and environmental services and sells professional-service software globally.  It gets 34% of its business from the environmental sector, with resources, mining and energy coming in second with 15%. Third is transportation at 14%.

As the mining industry is sorting itself out, the company can look toward oil and gas, as well as infrastructure projects picking up in Australia. The US is improving and the environmental sector is strong, according to the company.

It has steadily increased its profits since 2004, in 2013 profits were $77.6 million on $1.19 billion in revenue. EPS growth over the past three years has been a compound annual 7%.

Leighton Holdings Limited (ASX: LEI), the largest engineering company listed on the ASX, operates in 20 countries through independent operating companies such as Leighton Contractors, John Holland, and Thiess.

Amongst the number of recent contracts, it was awarded a $570 million mine extension for its Curragh North coal mine in the Bowen Basin in QLD. This was from a subsidiary of Wesfarmers Ltd (ASX: WES). Additionally, a 3-year $135 million iron ore development project was awarded by Western Desert Resources Ltd (ASX: WDR) in January.

2012 NPAT was $442.1 million, up 28.2% from 2011, and 2013’s half-year report had NPAT at $356 million, which is encouraging as we wait to see the full-year result in February.

RCR Tomlinson Limited (ASX: RCR), a $416 million company, has three business divisions – resources, energy and infrastructure. Resources accounts for about 50% of total revenue, with energy and power bringing in 18.8% and 13.1% respectively.

It had been a stable earner, but since 2010 both revenue and profits really took off, with NPAT rising from $17.4 million to $37.3 million in three years. A consensus of analyst forecasts is projecting a median rise in EPS from 27.9 cents per share to 39.5 cps over the next two years to the end of FY2015. That’s an estimated 41.5% increase.

Foolish takeaway

A growing country like Australia will always need engineering projects, but for companies that have overseas operations, the regional diversification can keep earnings stable.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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