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EMCOR (EME) Climbs 47% in 6 Months Despite Industry Headwinds
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EMCOR Group, Inc.’s (EME - Free Report) shares soared 47% over the past six months compared with the industry’s 25.2% rise. The company’s diversified business, robust demand across all end markets and acquisitions helped drive growth despite various adverse macroeconomic conditions, namely increased inflation, supply-chain disruptions and higher energy costs.
Also, EMCOR offers a sound investment opportunity, evident from its VGM Score of A.
However, this Zacks Rank #3 (Hold) company’s growth remains challenged by domestic and international political developments, foreign exchange headwinds, labor market tightness, increased competition, government regulations, and the continuing threat of COVID-19 variants. Pricing and the availability of materials are directly affected by inflationary pressures and supply-chain disruptions.
Focus on Growth
Resilient end markets, solid Remaining Performance Obligations or RPOs and bolt-on acquisitions are gaining traction. The company’s RPOs increased 22% and 15.2% year over year in 2021 and 2020, respectively. RPOs at September-end were up 32% year over year to a record $7.10 billion.
EMCOR continues to see demand for electrical mechanical systems in new construction and retrofit projects.
The robust business in EME’s construction operations is one of the major drivers of its financial growth. Within the U.S. construction umbrella, the U.S. Electrical Construction and Facilities Services segment’s revenues increased 19.3% year over year for the third quarter, with organic revenue growth of 13.1%.
Image Source: Zacks Investment Research
Notably, the company benefitted from increased project activity within the commercial (exclusive of the telecommunications submarket, including data center and high-tech manufacturing projects), manufacturing, healthcare and transportation sectors.
The U.S. Mechanical Construction and Facilities Services segment’s revenues rose 11.2% from the year-ago level. The upside was derived from the majority of the market served, with the water and wastewater, institutional, and commercial markets experiencing the most significant period-over-period increases.
Revenue growth of EME received a boost from its long-term acquisition programs. In the first nine months of 2022, EME spent $91.1 million on acquisitions, including the recent acquisition of Boston-based Gaston Electrical Co., LLC. Business diversity is also a component of inorganic growth measures followed by the company. Acquisitions were possible due to EME’s long-standing balanced capital allocation strategy, resulting in long-term value creation for its shareholders.
The Zacks Consensus Estimate for the company’s 2023 sales and EPS is pegged at $11.7 billion and $9.10 per share, suggesting 6.3% and 17% growth, respectively, from the year-ago reported figures.
Possible Headwinds
Production and growth of EMCOR are mainly affected by increased supply-chain woes, high inflationary pressures and COVID-related risks. These factors lead to a reduction in the availability of raw materials, as well as increased production costs.
The Russia-Ukraine war added to the uncertainty, especially with respect to energy and raw material costs.
In the first nine months of 2022, the company’s gross and operating margins declined 100 basis points (bps) and 50 bps on a year-over-year basis. The downside mainly resulted from the weak United States construction segments, owing to discrete project losses incurred by the Mechanical and Electrical Construction segments.
United Rentals currently carries a Zacks Rank #2 (Buy). Shares of the company have gained 14.2% in the past year.
The Zacks Consensus Estimate for URI’s 2023 sales and EPS suggest growth of 11.8% and 14.9%, respectively, from the year-ago period’s reported levels.
CRH currently flaunts a Zacks Rank #1. Shares of CRH have rallied 29.2% in the past six months.
The Zacks Consensus Estimate for CRH’s 2023 sales and EPS suggest growth of 3.6% and 18.4%, respectively, from the year-ago period’s reported levels.
Dycom currently carries a Zacks Rank #2. DY has a trailing four-quarter earnings surprise of 142.93%, on average. Shares of the company have gained 1.1% in the past year.
The Zacks Consensus Estimate for DY’s fiscal 2024 sales and EPS suggest growth of 7.31% and 28.07%, respectively, from the year-ago period’s reported levels
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EMCOR (EME) Climbs 47% in 6 Months Despite Industry Headwinds
EMCOR Group, Inc.’s (EME - Free Report) shares soared 47% over the past six months compared with the industry’s 25.2% rise. The company’s diversified business, robust demand across all end markets and acquisitions helped drive growth despite various adverse macroeconomic conditions, namely increased inflation, supply-chain disruptions and higher energy costs.
Also, EMCOR offers a sound investment opportunity, evident from its VGM Score of A.
However, this Zacks Rank #3 (Hold) company’s growth remains challenged by domestic and international political developments, foreign exchange headwinds, labor market tightness, increased competition, government regulations, and the continuing threat of COVID-19 variants. Pricing and the availability of materials are directly affected by inflationary pressures and supply-chain disruptions.
Focus on Growth
Resilient end markets, solid Remaining Performance Obligations or RPOs and bolt-on acquisitions are gaining traction. The company’s RPOs increased 22% and 15.2% year over year in 2021 and 2020, respectively. RPOs at September-end were up 32% year over year to a record $7.10 billion.
EMCOR continues to see demand for electrical mechanical systems in new construction and retrofit projects.
The robust business in EME’s construction operations is one of the major drivers of its financial growth. Within the U.S. construction umbrella, the U.S. Electrical Construction and Facilities Services segment’s revenues increased 19.3% year over year for the third quarter, with organic revenue growth of 13.1%.
Image Source: Zacks Investment Research
Notably, the company benefitted from increased project activity within the commercial (exclusive of the telecommunications submarket, including data center and high-tech manufacturing projects), manufacturing, healthcare and transportation sectors.
The U.S. Mechanical Construction and Facilities Services segment’s revenues rose 11.2% from the year-ago level. The upside was derived from the majority of the market served, with the water and wastewater, institutional, and commercial markets experiencing the most significant period-over-period increases.
Revenue growth of EME received a boost from its long-term acquisition programs. In the first nine months of 2022, EME spent $91.1 million on acquisitions, including the recent acquisition of Boston-based Gaston Electrical Co., LLC. Business diversity is also a component of inorganic growth measures followed by the company. Acquisitions were possible due to EME’s long-standing balanced capital allocation strategy, resulting in long-term value creation for its shareholders.
The Zacks Consensus Estimate for the company’s 2023 sales and EPS is pegged at $11.7 billion and $9.10 per share, suggesting 6.3% and 17% growth, respectively, from the year-ago reported figures.
Possible Headwinds
Production and growth of EMCOR are mainly affected by increased supply-chain woes, high inflationary pressures and COVID-related risks. These factors lead to a reduction in the availability of raw materials, as well as increased production costs.
The Russia-Ukraine war added to the uncertainty, especially with respect to energy and raw material costs.
In the first nine months of 2022, the company’s gross and operating margins declined 100 basis points (bps) and 50 bps on a year-over-year basis. The downside mainly resulted from the weak United States construction segments, owing to discrete project losses incurred by the Mechanical and Electrical Construction segments.
Key Picks
Some better-ranked stocks in the Zacks Construction sector are United Rentals, Inc. (URI - Free Report) , CRH plc (CRH - Free Report) and Dycom Industries, Inc. (DY - Free Report) . You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
United Rentals currently carries a Zacks Rank #2 (Buy). Shares of the company have gained 14.2% in the past year.
The Zacks Consensus Estimate for URI’s 2023 sales and EPS suggest growth of 11.8% and 14.9%, respectively, from the year-ago period’s reported levels.
CRH currently flaunts a Zacks Rank #1. Shares of CRH have rallied 29.2% in the past six months.
The Zacks Consensus Estimate for CRH’s 2023 sales and EPS suggest growth of 3.6% and 18.4%, respectively, from the year-ago period’s reported levels.
Dycom currently carries a Zacks Rank #2. DY has a trailing four-quarter earnings surprise of 142.93%, on average. Shares of the company have gained 1.1% in the past year.
The Zacks Consensus Estimate for DY’s fiscal 2024 sales and EPS suggest growth of 7.31% and 28.07%, respectively, from the year-ago period’s reported levels