Strong third-quarter 2012 earnings results and rising estimates helped Emcor Group Inc. ( EME - Snapshot Report ) to achieve a Zacks #1 Rank (Strong Buy) on January 1, 2013. This electrical and mechanical construction company has outperformed the Zacks Consensus Estimates in the last three quarters by an average 11.7%.

One of the company’s peers, Chicago Bridge & Iron ( CBI - Analyst Report ) currently attained a Zacks #2 Rank (Buy) following 14% earnings growth in its third quarter 2012. Chicago Bridge’s earnings of 82 cents also surpassed the Zacks Consensus Estimate by 1.2%.

The Rank Drivers

Sequential backlog growth, organic revenue growth and strong profitability amid challenging market conditions were the rank drivers for this stock.

On October 25, 2012, Emcor Group reported robust third quarter results with earnings of 59 cents a share surpassing the Zacks Consensus Estimate by 18% or 9 cents a share. Further, earnings were also up 25.5% year over year.

Consolidated revenues for the third quarter grew 8.4% year over year to $1.61 billion, while organic growth was 6.5%. The year-over-year increase in revenue was driven by growth across all segments.

Gross margin during the quarter declined a marginal 5 basis points (bps) to 12.6%. Operating margin grew 46 bps year over year helped by cost control measures.

Further, on December 7, 2012, the board of directors of Emcor declared a 20% increase in the quarterly dividend to 6 cents a share.

Emcor is scheduled to release its fourth quarter 2012 results on February 16, 2013.

Preliminary Results Drive Estimates

Following the strong earnings results, earnings estimates moved higher in the past 90 days. The Zacks Consensus Estimate for fiscal 2013 climbed 5.1% to $2.08 per share, as all the 6 estimates were raised. This represents year-over-year growth of 11.1%.

The Zacks Consensus Estimate for fiscal 2014 increased 2.5% to $2.44 per share over the same time frame, as 4 out of 6 estimates climbed, reflecting a year-over-year increase of 17.2%.

Valuation

Emcor currently trades at a forward P/E of 16.4x, significantly above the peer group average of 13.8x. On a price-to-book basis, the shares trade at 1.72x, reflecting a premium of 2.4% to the peer group average of 1.68x. Given the company's strong fundamentals, the premium valuation is justified.

Company Description

Founded in 1966 and headquartered in Norwalk, Connecticut, Emcor is one of the largest electrical and mechanical construction and facilities services firms in the U.S. and the U.K. Emcor provides services to a broad range of commercial, industrial, utility and institutional customers through approximately 70 operating subsidiaries and joint venture companies.