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3 Stocks to Watch From a Prosperous Heavy Construction Industry
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The Zacks Building Products - Heavy Construction sector is anticipated to maintain momentum, driven by a substantial infrastructure initiative spearheaded by the U.S. government. The objective of this initiative is to enhance the country's roads, bridges, and broadband connectivity. Companies within the industry are leveraging the heightened demand observed across multiple sectors, such as communications, transmission, power, and other infrastructure projects. Despite facing challenges such as project delays, a competitive labor market, and rising costs, certain companies like EMCOR Group Inc. (EME - Free Report) , Granite Construction Incorporated (GVA - Free Report) and Orion Group Holdings, Inc. (ORN - Free Report) have effectively navigated these obstacles and are well-positioned to capitalize on strong market prospects. While macroeconomic hurdles may affect some customer plans, these companies are poised for growth in this dynamic sector.
Industry Description
The Zacks Building Products - Heavy Construction industry consists of mechanical and electrical construction, industrial and energy infrastructure as well as building service providers. This industry comprises heavy civil construction companies that specialize in the building and reconstruction of transportation projects, including highways, roads, bridges, airfields, ports and light rail. The companies serve commercial, industrial, utility and institutional clients. The industry players are engaged in the engineering, construction and maintenance of communications infrastructure, oil and natural gas pipelines as well as processing facilities for energy and utility industries. These firms are also engaged in mining and dredging services in the United States and internationally.
4 Trends Shaping the Future of the Heavy Construction Industry
U.S. Administration’s Infrastructural Endeavor: The announcement of President Joe Biden’s massive infrastructure plan to build modern sustainable infrastructure and a clean future will have major implications for the U.S. economy and the construction industry over the next five years. Biden’s plan for accelerated investments in far-reaching areas, from roads and bridges to green spaces, water systems, electricity grids, as well as universal broadband, laid a new foundation for sustainable growth, withstanding the impacts of climate change and improving public health, including access to clean air and clean water. The aforesaid infrastructural expansion plan should be a boon for construction-related companies.
Strong Prospects in Telecommunication: The ramp-up of projects related to 5G has been a silver lining for the industry players. The increased demand from telecom customers for wireline networks, wireless/wireline converged networks and wireless networks using 5G technologies has been benefiting industry players. Construction work for communications is expected to pick up on huge investments in network expansion. Also, the industry is poised to gain from a significant number of project awards across multiple segments, including communications, health care, transmission and power, along with infrastructural projects in domestic and international markets.
Solid Inorganic Moves & Renewable Business Prospects: Acquisitions have been companies’ preferred mode of solidifying product portfolios and leveraging new business opportunities. Again, due to increased renewable project activity and the expansion of services in biomass and other smaller production facilities, the power generation and industrial construction market is poised to see sizable growth. The companies are well-positioned to gain from the renewable energy drive of the pro-environmental Biden administration. The development and deployment of technology solutions across the full spectrum of decarbonization efforts, comprising all facets of infrastructure for providing carbon-free energy solutions, should benefit the companies going forward.
Macroeconomic Challenges: The biggest headwinds for the industry players are currently centered around macroeconomic challenges, labor availability and supply-chain delays. In addition to a tight labor market, a rise in raw material costs is a concern. Meanwhile, the businesses of the industry players are susceptible to the cyclical nature of the markets in which clients operate and are dependent on the timing and funding of new awards. Hence, volatility in credits and operating risks associated with economic down cycles are pressing concerns. Macroeconomic effects may dampen the near-term execution of some customer plans.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Building Products - Heavy Construction industry is a 10-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #92, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags the S&P 500 & Sector
The Zacks Building Products - Heavy Construction industry has lagged the Zacks S&P 500 composite and the broader Zacks Construction sector over the past year.
Stocks in this industry have collectively gained 23.3% versus the broader sector’s 48.2% rally. Meanwhile, the S&P 500 has jumped 24% in the said period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing heavy construction stocks, the industry is currently trading at 16.9X versus the S&P 500’s 19.8X and the sector’s 16.8X.
Over the past five years, the industry has traded as high as 18.2X, as low as 7.5X and at a median of 13.4X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 Heavy Construction Stocks to Watch
Here, we have discussed three stocks from the industry that have solid earnings growth potential. The chosen companies currently sport a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
EMCOR Group: Headquartered in Norwalk, CT, this company provides electrical and mechanical construction and facilities services in the United States. EMCOR has been benefiting from solid execution in the U.S. Construction segment — comprising the U.S. Mechanical and Electrical Construction units — as well as disciplined cost control, project execution strategies and acquisition policies. The company has been gaining from resilient demand for its services, primarily in semiconductors, data centers, manufacturing re-shoring, healthcare and across the EV value chain, which sparked its growth momentum. Also, accretive buyouts have been strengthening its overall results by adding new markets, opportunities and capabilities.
EMCOR, currently sporting a Zacks Rank #1, has surged 47.9% over the past year. Also, 2024 earnings estimates have increased to $12.56 per share from $11.66, over the past 60 days. Earnings for 2024 are expected to grow 1.5%. EME surpassed earnings estimates in all the trailing four quarters, with the average surprise being 25%.
Price and Consensus: EME
Granite Construction: Based in Watsonville, CA, this company is an infrastructure contractor and a construction materials producer in the United States. Overall, a robust market environment has been driving improved profitability across its businesses. Its sufficient liquidity position has enabled the company to opportunistically invest in its vertically integrated operations through organic investment and bolt-on acquisitions.
GVA, currently flaunting a Zacks Rank #1, has gained 39.8% over the past year. Also, 2024 earnings estimates have increased to $4.29 per share from $4.20, over the past 30 days. Earnings for 2024 are expected to grow 37.5%. It carries an impressive VGM Score of B.
Price and Consensus: GVA
Orion Group: This Houston, TX-based company functions as a specialized construction firm specializing in projects across building, industrial, and infrastructure sectors. Their operations span the United States, Alaska, Canada, and the Caribbean Basin. The backlog, which serves as a crucial metric reflecting the overall health of the business, amounted to $878 million as of Sep 30, 2023, a notable increase from the $549 million recorded in the year-ago period. Simultaneously, the company is committed to divesting its unprofitable concrete business in central Texas to pave the way for future growth. This strategic move aligns with the company's focus on enhancing margins through the pursuit of higher-quality projects and improved execution.
ORN, currently carrying a Zacks Rank #3, has gained 93% over the past year. Earnings for 2024 are expected to grow 135.9%. It carries an impressive VGM Score of B.
Price and Consensus: ORN
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3 Stocks to Watch From a Prosperous Heavy Construction Industry
The Zacks Building Products - Heavy Construction sector is anticipated to maintain momentum, driven by a substantial infrastructure initiative spearheaded by the U.S. government. The objective of this initiative is to enhance the country's roads, bridges, and broadband connectivity. Companies within the industry are leveraging the heightened demand observed across multiple sectors, such as communications, transmission, power, and other infrastructure projects. Despite facing challenges such as project delays, a competitive labor market, and rising costs, certain companies like EMCOR Group Inc. (EME - Free Report) , Granite Construction Incorporated (GVA - Free Report) and Orion Group Holdings, Inc. (ORN - Free Report) have effectively navigated these obstacles and are well-positioned to capitalize on strong market prospects. While macroeconomic hurdles may affect some customer plans, these companies are poised for growth in this dynamic sector.
Industry Description
The Zacks Building Products - Heavy Construction industry consists of mechanical and electrical construction, industrial and energy infrastructure as well as building service providers. This industry comprises heavy civil construction companies that specialize in the building and reconstruction of transportation projects, including highways, roads, bridges, airfields, ports and light rail. The companies serve commercial, industrial, utility and institutional clients. The industry players are engaged in the engineering, construction and maintenance of communications infrastructure, oil and natural gas pipelines as well as processing facilities for energy and utility industries. These firms are also engaged in mining and dredging services in the United States and internationally.
4 Trends Shaping the Future of the Heavy Construction Industry
U.S. Administration’s Infrastructural Endeavor: The announcement of President Joe Biden’s massive infrastructure plan to build modern sustainable infrastructure and a clean future will have major implications for the U.S. economy and the construction industry over the next five years. Biden’s plan for accelerated investments in far-reaching areas, from roads and bridges to green spaces, water systems, electricity grids, as well as universal broadband, laid a new foundation for sustainable growth, withstanding the impacts of climate change and improving public health, including access to clean air and clean water. The aforesaid infrastructural expansion plan should be a boon for construction-related companies.
Strong Prospects in Telecommunication: The ramp-up of projects related to 5G has been a silver lining for the industry players. The increased demand from telecom customers for wireline networks, wireless/wireline converged networks and wireless networks using 5G technologies has been benefiting industry players. Construction work for communications is expected to pick up on huge investments in network expansion. Also, the industry is poised to gain from a significant number of project awards across multiple segments, including communications, health care, transmission and power, along with infrastructural projects in domestic and international markets.
Solid Inorganic Moves & Renewable Business Prospects: Acquisitions have been companies’ preferred mode of solidifying product portfolios and leveraging new business opportunities. Again, due to increased renewable project activity and the expansion of services in biomass and other smaller production facilities, the power generation and industrial construction market is poised to see sizable growth. The companies are well-positioned to gain from the renewable energy drive of the pro-environmental Biden administration. The development and deployment of technology solutions across the full spectrum of decarbonization efforts, comprising all facets of infrastructure for providing carbon-free energy solutions, should benefit the companies going forward.
Macroeconomic Challenges: The biggest headwinds for the industry players are currently centered around macroeconomic challenges, labor availability and supply-chain delays. In addition to a tight labor market, a rise in raw material costs is a concern. Meanwhile, the businesses of the industry players are susceptible to the cyclical nature of the markets in which clients operate and are dependent on the timing and funding of new awards. Hence, volatility in credits and operating risks associated with economic down cycles are pressing concerns. Macroeconomic effects may dampen the near-term execution of some customer plans.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Building Products - Heavy Construction industry is a 10-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #92, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags the S&P 500 & Sector
The Zacks Building Products - Heavy Construction industry has lagged the Zacks S&P 500 composite and the broader Zacks Construction sector over the past year.
Stocks in this industry have collectively gained 23.3% versus the broader sector’s 48.2% rally. Meanwhile, the S&P 500 has jumped 24% in the said period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing heavy construction stocks, the industry is currently trading at 16.9X versus the S&P 500’s 19.8X and the sector’s 16.8X.
Over the past five years, the industry has traded as high as 18.2X, as low as 7.5X and at a median of 13.4X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 Heavy Construction Stocks to Watch
Here, we have discussed three stocks from the industry that have solid earnings growth potential. The chosen companies currently sport a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
EMCOR Group: Headquartered in Norwalk, CT, this company provides electrical and mechanical construction and facilities services in the United States. EMCOR has been benefiting from solid execution in the U.S. Construction segment — comprising the U.S. Mechanical and Electrical Construction units — as well as disciplined cost control, project execution strategies and acquisition policies. The company has been gaining from resilient demand for its services, primarily in semiconductors, data centers, manufacturing re-shoring, healthcare and across the EV value chain, which sparked its growth momentum. Also, accretive buyouts have been strengthening its overall results by adding new markets, opportunities and capabilities.
EMCOR, currently sporting a Zacks Rank #1, has surged 47.9% over the past year. Also, 2024 earnings estimates have increased to $12.56 per share from $11.66, over the past 60 days. Earnings for 2024 are expected to grow 1.5%. EME surpassed earnings estimates in all the trailing four quarters, with the average surprise being 25%.
Price and Consensus: EME
Granite Construction: Based in Watsonville, CA, this company is an infrastructure contractor and a construction materials producer in the United States. Overall, a robust market environment has been driving improved profitability across its businesses. Its sufficient liquidity position has enabled the company to opportunistically invest in its vertically integrated operations through organic investment and bolt-on acquisitions.
GVA, currently flaunting a Zacks Rank #1, has gained 39.8% over the past year. Also, 2024 earnings estimates have increased to $4.29 per share from $4.20, over the past 30 days. Earnings for 2024 are expected to grow 37.5%. It carries an impressive VGM Score of B.
Price and Consensus: GVA
Orion Group: This Houston, TX-based company functions as a specialized construction firm specializing in projects across building, industrial, and infrastructure sectors. Their operations span the United States, Alaska, Canada, and the Caribbean Basin. The backlog, which serves as a crucial metric reflecting the overall health of the business, amounted to $878 million as of Sep 30, 2023, a notable increase from the $549 million recorded in the year-ago period. Simultaneously, the company is committed to divesting its unprofitable concrete business in central Texas to pave the way for future growth. This strategic move aligns with the company's focus on enhancing margins through the pursuit of higher-quality projects and improved execution.
ORN, currently carrying a Zacks Rank #3, has gained 93% over the past year. Earnings for 2024 are expected to grow 135.9%. It carries an impressive VGM Score of B.
Price and Consensus: ORN