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EMCOR (EME) Gains From Solid Construction Activity & Buyouts

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EMCOR Group, Inc. (EME - Free Report) has been benefiting from the U.S. Construction business, inorganic moves and upbeat expectations.

Notably, shares of EMCOR have gained 12.4% over the past month compared with the industry’s 10.7% rally. The price performance was backed by a solid earnings surprise history. EMCOR’s earnings surpassed the Zacks Consensus Estimate in six of the trailing seven quarters. Earnings estimates for the fourth quarter and 2020 have moved up 7.5% and 10.4%, respectively, in the past 60 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Major Growth Drivers

Solid Construction Business: EMCOR’s U.S. Construction segment — comprising the U.S. Mechanical and Electrical Construction units — has been displaying significant strength. The segment’s robust performance has been backed by consistent demand from end-markets served and solid project execution across the business despite coronavirus-related disruptions. Total Remaining Performance Obligations or RPOs at the end of third-quarter 2020 were a little more than $4.5 billion, up 12.3% year over year. Likewise, RPOs increased $494 million for the first nine months of 2020, with the maximum growth being organic except for approximately $86 million relating to two acquisitions made in the 12-month period. Third-quarter 2020 Mechanical and Electrical Construction segments’ RPOs increased 12.4% year over year, of which 7% was organic, with the balance being RPOs that came with its November 2019 acquisition of BKI.

For third-quarter 2020, the U.S. Construction segment’s operating margins improved 240 basis points (bps) from the last year, supported by a solid cost structure and productivity levels. Despite being impacted by the COVID-19 pandemic, the company remains encouraged by its robust performance, accretive acquisitions and demand for services.

Inorganic Moves: The company is keen on acquisition of assets and businesses. The company’s acquisition strategies are directed toward buying small private firms with proven management and expansion potential. EMCOR completed its ninth acquisition in August, which will build the company’s project capabilities and enable it to come up with long-term service growth in the Washington D.C. market. In January, EMCOR acquired a building automation and controls solutions company within the building services segment. Also, it executed the acquisition of seven companies in 2019. These buyouts strengthened its overall results by adding new markets, opportunities and capabilities. The company plans to acquire more such companies in the future.

Upbeat View: EMCOR — which shares space with Dycom Industries, Inc. (DY - Free Report) , MasTec, Inc. (MTZ - Free Report) and Sterling Construction Company Inc. (STRL - Free Report) in the same industry — has raised its earnings and revenue guidance for 2020, given year-to-date performance and continuation of the current positive market trends. The company now expects revenues to be $8.7 billion versus $8.6-$8.7 billion expected earlier. It estimates adjusted earnings per share of $5.90-$6.10 versus $5.00-$5.50 expected earlier. In 2019, the company registered revenues of $9.17 billion and adjusted earnings of $5.75 per share.

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