Why You Should Consider Investing In EMCOR (EME) Right Now

EMCOR Group, Inc. (NYSE:EME) has been enjoying solid momentum in non-residential construction demand, along with strong project execution, which has shored up its earnings in recent quarters. In fact, the company has consistently grown its earnings faster than revenues through efficient cost-control measures, over the past couple of years. This has resulted in margin expansion and improving profitability over time.

We believe the company has several growth drivers in place and enjoys a robust foothold in its served markets, which will likely help it maintain the growth momentum in the times to come.

Investors also seem to think the same, as they have favored this stock in recent times. This Zacks Rank #1 (Strong Buy) company has outperformed the industry over the past year, having appreciated 12.1% compared to the industry’s scanty gain of 3.9%.

Let’s discuss some of these growth drivers and also shed light on some of the risks that the company is vulnerable to.

EMCOR’s revenue growth has been driven by sound performance from the combined U.S. Construction segments, along with solid contribution from the recent acquisitions. In fact, the company posted record gross profit, operating income and net income from continuing operations levels in the recently-reported quarterly results. The company’s earnings beat estimates by a whopping 32.9% and rose an impressive 28.2% year over year.

Particularly, the U.S. Mechanical construction segment has been witnessing robust execution. In the third-quarter results, this segment witnessed revenue growth of 7.3%. The U.S. Construction segment sustained its robust momentum and grew 5.9% year over year, while the U.S. Building Services business rose 5.1% year over year.

Encouraged by its accretive acquisitions and increasing traction in the U.S. construction space, EMCOR’s management had raised its earnings guidance for 2017 to a range of $3.70-$3.80 (up from previous projections of $3.40-$3.60).

Further, EMCOR’s acquisition strategies have been lending momentum to the company’s operations as well. Over time, these buyouts have fortified EMCOR’s market-leading position in electrical construction and services, and expanded its capabilities in the energy and industrial sectors.

We are highly optimistic about EMCOR’s recent acquisition of Ardent, which will solidify the company’s position in electrical construction and services, and expand its capabilities in the energy and industrial sectors, particularly in the gulf coast, western and mid-continent regions. The company anticipates the Ardent buyout to be accretive to its 2017 earnings by at least 10 cents per share. This will likely provide a robust boost to the company’s numbers.

Furthermore, the executive order signed by Trump last month to accelerate approvals of permits for highways, bridges and other major building efforts (as part of his proposal to spend $1 trillion to fix aging U.S. infrastructure) will provide a boost to EMCOR’s operations.

However, the company has been facing headwinds in its U.S. Industrial Services segment, which has been hit by Hurricane Harvey and continues to be vulnerable to the volatility in oil and gas prices. Harvey resulted in lower field service activities as it impacted EMCOR’s customers' facilities in the Texas Louisiana Gulf Coast region. It also led to the previously scheduled maintenance turnaround work being delayed or deferred. The impact of the disruption caused by the tropical storm will likely be seen in the coming couple of quarters as well.

However, we believe the company’s diversified business structure, along with its concerted efforts to explore beyond traditional shop-related operations for tapping other profitable areas like food processing and power, will drive long-term growth.

Other Stocks to Consider

Some top-ranked stocks in the broader space are MasTec, Inc. (NYSE:MTZ) , Weyerhaeuser Company (NYSE:WY) and Sterling Construction Company Inc (NASDAQ:STRL) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

MasTec generated four outstanding beats over the trailing four quarters, for an impressive average positive surprise of 28.1%.

Weyerhaeuser has beaten estimates thrice in the trailing four quarters, and generated an average positive surprise of 7.2% during the same period.

Sterling Construction has a striking earnings surprise history for the same time frame, having beaten estimates thrice for an average beat of 65.2%.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>