Back to top

Image: Bigstock

Zacks Industry Outlook Highlights: MasTec, EMCOR, Sterling Construction and Dycom Industries

Read MoreHide Full Article

For Immediate Release

Chicago, IL – November 11, 2021 – Today, Zacks Equity Research discusses Building Products - Heavy Construction, including MasTec, Inc. (MTZ - Free Report) , EMCOR Group, Inc. (EME - Free Report) , Sterling Construction Company, Inc. (STRL - Free Report) and Dycom Industries, Inc. (DY - Free Report) .


Solid growth in end markets like communications, transmission and power as well as other infrastructural projects will benefit the companies in the Zacks Building Products - Heavy Construction industry. President Joe Biden’s major infrastructure initiative to improve the nation’s roads, bridges and broadband is adding to the bliss.

Yet coronavirus-induced disruptions, unprecedented supply chain disruptions and project delays, a tight labor market as well as rising costs are pressing concerns. MasTecEMCOR and Sterling Construction are set to benefit from solid market prospects despite the above-mentioned headwinds.

Industry Description

The Zacks Building Products - Heavy Construction industry consists of mechanical and electrical construction, industrial and energy infrastructure, and building service providers. This industry comprises heavy civil construction companies that specialize in the building and reconstruction of transportation projects that include highways, roads, bridges, airfields, ports, and light rail.

The companies serve commercial, industrial, utility and institutional clients. The industry players are engaged in 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 Heavy Construction Industry

Biden’s Infrastructural Deal: The announcement of President Joe Biden’s $973-billion infrastructure plan to build a modern sustainable infrastructure and 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 investment includes far-reaching areas from roads and bridges to green spaces, water systems, electricity grids as well as universal broadband for laying a new foundation for sustainable growth — withstanding the impacts of climate change — along with improving public health, including access to clean air and clean water.

The aforesaid infrastructural expansion plan will be a boon for construction-related companies like Dycom Industries, EMCOR, MasTec and others in the same industry.

Strong Prospects in Telecommunication: The ramp-up of projects related to 5G has been a silver lining for the industry players. Increased demand from telecom customers for wireline networks, wireless/wireline converged networks and wireless networks using 5G technologies has been benefiting the industry players. Construction work for communications is expected to pick up on huge investments in network expansion.

The proliferation of smartphones should drive demand for network bandwidth and mobile broadband. 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 as well as international markets.

Solid Inorganic Moves & Renewable Business Prospects: Acquisitions have been the companies’ preferred mode of solidifying the product portfolio and leveraging new business opportunities. Again, owing to increased renewable project activity and expansion of services in biomass as well as 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. Development and deployment of technology solutions across the full spectrum of decarbonization efforts, comprising all facets of infrastructure for providing carbon-free energy solutions, will benefit the companies going forward.

Coronavirus-Related Woes: The biggest headwinds for the industry players are currently centered on the COVID-19 pandemic, labor availability and supply chain delays. The companies have been facing the impact of the same on project schedules, given governmental permitting and crew social-distancing mitigation. Along with a tight labor market, a rise in raw material costs has been making things worse.

Meanwhile, 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.

Zacks Industry Rank Indicates Dull Prospects

The Zacks Building Products - Heavy Construction industry is a 21-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #183, which places it in the bottom 27% 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 bleak 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.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of lower earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since October 2021, the industry’s earnings estimates for 2021 and 2022 have been revised 2.9% and 10.2% downward, respectively.

Despite the industry’s gloomy near-term view, we will present a few stocks that one may consider adding to their portfolio. Before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.

Industry Outperforms Sector & S&P 500

The Zacks Building Products - Heavy Construction industry has outperformed the broader Zacks Construction sector and the Zacks S&P 500 composite over the past year.

Stocks in this industry have collectively gained 55% versus the broader sector’s growth of 32.2%. Meanwhile, the S&P 500 has risen 33.1% in the said period.

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 16.4 versus the S&P 500’s 22.2 and the sector’s 15.2.

Over the past five years, the industry has traded as high as 18.3X, as low as 7.5X and at a median of 13.8X, as the chart below shows.

3 Heavy Construction Stocks to Keep on Watch

Below we have discussed three stocks from the industry that have solid earnings growth potential. The chosen companies currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sterling Construction Company: Headquartered in The Woodlands, TX, this company is engaged in heavy civil construction, specialty services and residential construction activities. It is currently reaping benefits from the transformed business portfolio and overall project mix toward higher value, lower risk, and more profitable work. The Specialty Services segment has been bolstered by the recent buyout of Plateau.

The Residential segment is gaining strength from faster-than-anticipated recovery of the Texas housing market and its expansion into the Houston market. Meanwhile, the company’s Heavy Civil business has been executing well on substantial heavy highway work. Its diverse portfolio of end customers and geographies, coupled with the strength of end-markets served, has been driving growth despite headwinds from inflation and the supply chain.

Sterling currently carries a Zacks Rank #1 and has gained 55.1% year to date, outperforming the industry’s 33.7% rally. Earnings for 2021 are expected to grow 41.5%. Its 2021 earnings estimates have increased 7.5% over the past seven days.

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 amid the COVID-19 pandemic. Also, accretive buyouts have been strengthening its overall results by adding new markets, opportunities and capabilities.

EMCOR, currently carrying a Zacks Rank #2, has gained 43.8% so far this year. Also, 2021 earnings estimates have increased 0.4% over the past seven days. Earnings for 2021 are expected to grow 10.6%.

MasTec: Based in Coral Gables, FL, this is a leading infrastructure construction company operating mainly throughout North America. MasTec has been benefiting from solid performance across the non-Oil and Gas business, strong backlog, and recent acquisitions. It is one of the largest clean energy contractors in the country. Its expertise in constructing wind farms, solar farms, biomass facilities, high-voltage transmission lines, substations, battery storage and hydrogen-enabled solutions uniquely position the company to grow further in this pro-clean energy Biden’s administration.

Currently, MasTec carries a Zacks Rank #3 and has seen upward estimate revisions from two analysts over the past seven days for 2021 earnings. The stock has gained 415% year to date. Earnings for 2021 are expected to grow 6.7%.

Join us on Facebook:

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit for information about the performance numbers displayed in this press release.

Published in