When Skanska AB secured the contract last week to manage the $500 million renovation of New York City's Madison Square Garden, it was the latest coup for a company that has racked up a string of high-profile projects across the U.S.

The Stockholm-based company, one of the world's largest construction firms, also is leading the renovation of the United Nations headquarters in Manhattan, building a new American football stadium for the New York Giants in New Jersey and is involved with constructing the $2.2 billion transportation hub in the World Trade Center rebuilding.

Despite those victories, investors have been pummeling the company's stock, worried that Skanska's prospects won't be nearly as promising amid a slowing economy and real-estate downturn. From the end of 2007, Skanska's shares have fallen 36%, underperforming the broader Stockholm stock market, which has fallen 23% in the same period. The stock closed 0.6% higher at 78.50 Swedish kronor ($13.06) on Tuesday in Stockholm.

Last week, the company reported relatively strong results. For the first half of 2008, Skanska's revenue from U.S. general-building activity, which includes construction of hospitals and schools, rose 11% from the previous period; construction revenue from U.S. infrastructure projects rose about 8%. The U.S. is Skanska's single largest market and makes up about 30% of the company's total revenue. Skanska reported first-half net profit rose 20% to 1.96 billion kronor ($326.1 million) from a year earlier while sales reached 68.6 billion kronor, up 7%.

Madison Square Garden An artist's rendering of the new Madison Square Garden arena in New York City. Skanska is managing a $500 million renovation project.

Nevertheless, analysts say investors are concerned. First, while the U.S. market is doing well now, there are signs that that could change. "I'm quite negative on the outlook," says Andreas Dahl, a Stockholm-based analyst with Crédit Agricole Cheuvreux Nordic. "What we are seeing now, with the weakening global economy, we are seeing tax revenues from the U.S. going down, which means they won't spend as much money on civil construction projects."

That comes as conditions in Skanska's home market have eroded. Unlike in the U.S., where Skanska focuses almost entirely on commercial and civil construction, in the Nordic region the company handles mainly residential and commercial work. And the residential market is in turmoil.

The company's order bookings are already starting to slip -- albeit from record levels achieved last year.

In a statement last week, Skanska said the Nordic residential market "is having a negative impact on both residential development earnings and the potential for starting new projects." The Nordic countries -- Finland, Sweden and Norway -- contribute about 42% of revenue.

In addition, Skanska has been taking write-downs on projects in the U.K., totaling 570 million kronor in the first two quarters. Mr. Dahl says he would "not be surprised to see more write-downs."

Analysts also warn of a squeeze in Skanka's operating margins, due in part to the rising cost of steel, copper and aluminum. Mr. Dahl expects margins for earnings before interest and taxes, to fall to 3.3% for 2008, from 3.4% in 2007, as there could be fewer projects for tender, which could drive down prices. For 2009, his target is for 2.7%.

Still, the company is hopeful it can escape some of the pressures in Europe by expanding beyond New York to other U.S. states, including California and Arizona, where infrastructure needs are great. "California is the eighth-largest economy in the world and has 35 million people so the market is like a large country by itself," says Stuart Graham, chairman of Skanska's U.S. division.

New York, which is investing heavily in infrastructure, makes up about 60% of Skanska's total U.S. civil construction revenues, according to Citigroup analyst Mike Pinkney. If the company can duplicate that success in other U.S. markets, its prospects could be brighter than investors expect.

PE Funds Shy away from Real Estate Sector

Peninsula widens Portfolio with IT Parks, Townships

Sweden Sells Property Firm

Russia’s Pik May Not Roll