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Here's Why Investors Should Hold EMCOR (EME) Stock Right Now
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EMCOR Group, Inc.’s (EME - Free Report) focus on acquisitions to broaden its footprint and solid demand for its services have been encouraging. Also, upbeat guidance for 2021 bodes well.
Backed by these tailwinds, shares of this leading electrical and mechanical construction and facilities service provider have climbed 29.4% year to date, outperforming the Zacks Building Products - Heavy Construction industry’s 15.1% rally. The price performance was also backed by the company’s robust earnings surprise history, having surpassed the Zacks Consensus Estimate in 13 of the trailing 14 quarters. Earnings estimates for 2021 have moved up 4% over the past 30 days, depicting analysts’ optimism over its prospects.
However, the negative impact of macroeconomic conditions within the oil and gas and related industrial markets is a concern.
EMCOR has a penchant for acquisitions and strategic alliances for bolstering inorganic growth as well as expanding market share. During the first six months of 2021, the company spent $57 million on the acquisition of three companies. EMCOR took over one company that provides mechanical services within the Southern region of the United States and another company that provides electrical construction services to a broad array of customers in the Midwestern region of the United States. The third buyout is that of a company that provides mobile mechanical services across North Texas, whose results of operations have been included under the U.S. building services segment. EMCOR’s second-quarter 2021 results include $53.8 million of revenues attributable to businesses acquired.
These buyouts strengthened its overall results by adding new markets, opportunities and capabilities. The company plans to acquire more such companies in the future.
Robust Demand For Services
EMCOR’s domestic construction segments have been registering gains, given solid demand for its services. The company’s domestic construction segments experienced strong project growth in second-quarter 2021, with total Remaining Performance Obligations or RPOs having increased $301 million since Jun 30, 2020. EMCOR continues to see demand for electrical mechanical systems, both in new construction and retrofit projects. Throughout the second quarter of 2021, it experienced strong year-over-year growth in all sectors served, except hospitality.
For second-quarter 2021, the U.S. Construction segment’s operating margins improved 20 basis points (bps) year over year to 8.4%, driven by broad-based business growth across trade offerings, end-market sectors and a vast geographic footprint. Despite being impacted by the COVID-19 pandemic, the company sustains its stability on robust performance, accretive acquisitions and demand for services.
Upbeat View
Backed by strong first and second-quarter results, the company lifted its view for 2021. The company now expects earnings per share within $6.65-$7.05 versus 6.35-$6.75 projected earlier. EMCOR raised its revenue guidance to nearly $9.5 billion for 2021 from the prior range of $9.2-$9.4 billion.
Superior ROE
EMCOR has a very strong return on equity (ROE) that is indicative of growth potential. The company’s ROE currently stands at 18.5%. This compares favorably with ROE of 12.9% for the industry it belongs to. This indicates efficiency in using shareholders’ funds and its ability to generate profit with minimum capital usage.
Headwinds
Coronavirus-Related Woes
The company’s U.S. Industrial Services unit — which focuses on downstream, petrochemical, and oil and gas refining — has been facing maximum COVID-related woes over time. Its Industrial Services segment had a tough 2020, with U.S. Industrial Services revenues decreasing 26.7%. For second-quarter 2021 too, U.S. Industrial Services revenues declined 2.5% year over year owing to depressed demand for its service offerings within the oil and gas and related industrial markets, given the negative impact of macroeconomic conditions in the markets served by the company. For the second quarter, the segment incurred an operating loss of $0.2 million against an income of $3.3 million a year ago.
Key Picks
Some better-ranked stocks in the broader Construction sector include Altair Engineering Inc. (ALTR - Free Report) , Quanta Services, Inc. (PWR - Free Report) and KBR, Inc. (KBR - Free Report) . While Altair sports a Zacks Rank #1, the other two stocks carry a Zacks Rank #2 (Buy).
Altair, Quanta Services, and KBR’s earnings for 2021 are expected to rise 64.5%, 19.9%, and 24.9%, respectively.
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Here's Why Investors Should Hold EMCOR (EME) Stock Right Now
EMCOR Group, Inc.’s (EME - Free Report) focus on acquisitions to broaden its footprint and solid demand for its services have been encouraging. Also, upbeat guidance for 2021 bodes well.
Backed by these tailwinds, shares of this leading electrical and mechanical construction and facilities service provider have climbed 29.4% year to date, outperforming the Zacks Building Products - Heavy Construction industry’s 15.1% rally. The price performance was also backed by the company’s robust earnings surprise history, having surpassed the Zacks Consensus Estimate in 13 of the trailing 14 quarters. Earnings estimates for 2021 have moved up 4% over the past 30 days, depicting analysts’ optimism over its prospects.
However, the negative impact of macroeconomic conditions within the oil and gas and related industrial markets is a concern.
Image Source: Zacks Investment Research
Let’s delve deeper into the major growth drivers of this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inorganic Drive
EMCOR has a penchant for acquisitions and strategic alliances for bolstering inorganic growth as well as expanding market share. During the first six months of 2021, the company spent $57 million on the acquisition of three companies. EMCOR took over one company that provides mechanical services within the Southern region of the United States and another company that provides electrical construction services to a broad array of customers in the Midwestern region of the United States. The third buyout is that of a company that provides mobile mechanical services across North Texas, whose results of operations have been included under the U.S. building services segment. EMCOR’s second-quarter 2021 results include $53.8 million of revenues attributable to businesses acquired.
These buyouts strengthened its overall results by adding new markets, opportunities and capabilities. The company plans to acquire more such companies in the future.
Robust Demand For Services
EMCOR’s domestic construction segments have been registering gains, given solid demand for its services. The company’s domestic construction segments experienced strong project growth in second-quarter 2021, with total Remaining Performance Obligations or RPOs having increased $301 million since Jun 30, 2020. EMCOR continues to see demand for electrical mechanical systems, both in new construction and retrofit projects. Throughout the second quarter of 2021, it experienced strong year-over-year growth in all sectors served, except hospitality.
For second-quarter 2021, the U.S. Construction segment’s operating margins improved 20 basis points (bps) year over year to 8.4%, driven by broad-based business growth across trade offerings, end-market sectors and a vast geographic footprint. Despite being impacted by the COVID-19 pandemic, the company sustains its stability on robust performance, accretive acquisitions and demand for services.
Upbeat View
Backed by strong first and second-quarter results, the company lifted its view for 2021. The company now expects earnings per share within $6.65-$7.05 versus 6.35-$6.75 projected earlier. EMCOR raised its revenue guidance to nearly $9.5 billion for 2021 from the prior range of $9.2-$9.4 billion.
Superior ROE
EMCOR has a very strong return on equity (ROE) that is indicative of growth potential. The company’s ROE currently stands at 18.5%. This compares favorably with ROE of 12.9% for the industry it belongs to. This indicates efficiency in using shareholders’ funds and its ability to generate profit with minimum capital usage.
Headwinds
Coronavirus-Related Woes
The company’s U.S. Industrial Services unit — which focuses on downstream, petrochemical, and oil and gas refining — has been facing maximum COVID-related woes over time. Its Industrial Services segment had a tough 2020, with U.S. Industrial Services revenues decreasing 26.7%. For second-quarter 2021 too, U.S. Industrial Services revenues declined 2.5% year over year owing to depressed demand for its service offerings within the oil and gas and related industrial markets, given the negative impact of macroeconomic conditions in the markets served by the company. For the second quarter, the segment incurred an operating loss of $0.2 million against an income of $3.3 million a year ago.
Key Picks
Some better-ranked stocks in the broader Construction sector include Altair Engineering Inc. (ALTR - Free Report) , Quanta Services, Inc. (PWR - Free Report) and KBR, Inc. (KBR - Free Report) . While Altair sports a Zacks Rank #1, the other two stocks carry a Zacks Rank #2 (Buy).
Altair, Quanta Services, and KBR’s earnings for 2021 are expected to rise 64.5%, 19.9%, and 24.9%, respectively.