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Why Is Emcor Group (EME) Up 12.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Emcor Group (EME - Free Report) . Shares have added about 12.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Emcor Group due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

EMCOR (EME - Free Report) Beats on Q4 Earnings & Revenues, 2021 View Strong

EMCOR Group Inc. reported better-than-expected results for fourth-quarter 2020. Its earnings surpassed the Zacks Consensus Estimate and increased from the prior-year quarter’s levels. The results were mainly driven by solid execution and disciplined cost control amid the COVID-19 pandemic. Meanwhile, revenues beat the consensus mark for the second straight quarter. However, the top line declined on a year-over-year basis.

Earnings & Revenues

The company reported adjusted earnings per share (EPS) of $1.86 per share, which topped the consensus mark of $1.43 by 30.1% and increased 20.8% from the year-ago quarter’s levels.

Revenues totaled $2,281.5 million, which beat the consensus mark by 4%. However, revenues declined 5.1% year over year mainly due to tepid performance of U.S. Industrial Services segment.

Segment Details

During fourth-quarter 2020, U.S. Construction segment’s revenues increased 0.2% year over year to $1,462.9 million. Segment operating margin improved 230 basis points (bps) year over year. The upside was primarily driven by solid performance in its U.S. Mechanical Construction segment in commercial, healthcare and institutional markets.

Within the U.S. Construction umbrella, the U.S. Electrical Construction and facilities services segment revenues declined 12.6% year over year to $493.5 million. Operating margin expanded 150 bps year over year. The U.S. Mechanical Construction and Facilities Services segment revenues grew 8.2% to $969.4 million. Its operating margin improved 270 bps.

During the quarter, revenues in the U.S. Building Services segment grew 5.4% year over year. The upside was primarily driven by strong performance in commercial site-based service businesses and sustained strength in mobile mechanical services business. Meanwhile, operating margin of 4.9% was up 40 bps from the prior-year quarter’s levels.

The U.S. Industrial Services unit’s fourth-quarter revenues plunged 54.7% year over year to $135.5 million. The segment was significantly impacted by reduction in demand for refined oil products due to COVID-19-related travel restrictions. This business reported operating margin of (6.1%) against operating margin of 4.4% a year ago due to the above-mentioned headwind.

The U.K. Building Services segment’s revenues in the quarter increased 8.9% year over year to $115 million. The upside was backed by proper execution across the company’s diversified customer base. The business reported operating margin of 3.7%, matching the prior-year quarter’s levels.

Operating Highlights

Selling, general and administrative expenses — as a percentage of revenues — were 10.7%, which increased 70 bps from the prior-year quarter’s tally.

Adjusted operating margin of 6% was up 90 bps, supported by strong cost containment measures.

Liquidity & Cash Flow

As of Dec 31, 2020, the company had cash and cash equivalents of $902.9 million compared with $358.8 million at 2019-end. Long-term debt and finance lease obligations totaled $259.6 million, up from $244.1 million recorded on Dec 31, 2019.

In 2020, EMCOR provided $806.4 million cash to operating activities compared with $355.7 million in the year-ago period.

2020 Highlights

Total revenues in 2020 came in at $8,797.1 million compared with $9,174.6 million in 2019.

Operating Income in 2020 came in at $256.8 million compared with $460.9 million in 2019.

In 2020, adjusted EPS came in at $6.40 compared with $5.75 in the previous year.

2021 Guidance

Buoyed by favorable project mix and the assumption that the current market conditions will continue, EMCOR provided strong earnings as well as revenue guidance.

It projects revenues for 2021 in the range of $9.2-$9.4 billion. The consensus estimate for 2021 revenues is currently pegged at $8.8 billion. The company expects earnings within $6.20-$6.70 per share. The Zacks Consensus Estimate is pegged at $5.89.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -7.5% due to these changes.

VGM Scores

Currently, Emcor Group has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Emcor Group has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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