EMCOR Group Inc. (EME - Free Report) has been riding high on solid non-residential construction demand and strong project execution. Shares of the company have gained more than 21.5% in the past year, outperforming its industry’s 1.4% growth. The company has outperformed the industry in each of the 4-week, 12-week and 52-week time frames. Encouragingly, it surpassed estimates in each of the trailing four quarters, recording an average positive surprise of 24.48%. In fact, the recent second-quarter earnings release marked the sixth consecutive earnings beat for the company.
Meanwhile, earnings estimates have been upwardly revised over the past few weeks, suggesting that sentiments on EMCOR are moving in the right direction. Also, earnings estimates for 2018 and 2019 have increased 4% and 2%, respectively, over the past 60 days.
This positive trend signifies bullish analysts’ sentiments. Moreover, the company’s Zacks Rank #2 (Buy) indicates robust fundamentals and expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s delve deeper into the other factors that make this stock a solid pick.
What Makes EMCOR a Solid Bet?
Solid Performance & Upbeat View: EMCOR recently came up with better-than-expected second quarter of 2018 results. In addition to delivering a positive earnings surprise of 23%, the company’s earnings were up 29.5% from the year-ago level, buoyed by higher productivity and improved margins. The upside was driven by continued strength in U.S. Construction and Building Services segments, along with robust performance of the U.K. Building Services segment.
The company is enjoying impressive organic growth, driven by U.S. Construction segments along with solid contribution from its recent acquisitions. Although U.S. Industrial Services reported dismal results, EMBOR expects to see a recovery in the second half of 2018 as mix and opportunities improve. Operating margins expanded 20 basis points in the quarter, given solid project execution.
Moreover, buoyed by solid market conditions and favorable project mix, EMCOR raised its expectation for current-year earnings as well as revenues during the second-quarter earnings call. The company now expects earnings from continuing operations within $4.40-$4.80 per share versus $4.10-$4.70 expected earlier. EMCOR boosted its revenue expectation to approximately $7.8 billion, depicting an increase from the prior guided range of $7.6-$7.7 billion.
Aggressive Acquisitions: The company is keen on acquisition of assets and businesses. During the second quarter of 2018, EMCOR acquired two companies. One company provides mobile mechanical services within the Western region of the United States, and the other one offers mobile mechanical and fire protection services across the Southern region. Both of the companies’ results have been included in its U.S. Building Services segment.
The companies acquired in 2017 and 2018 so far, reported in its U.S. Mechanical Construction and Facilities Services and U.S. Building Services segments, generated incremental revenues and operating income of $16.5 million and $1.6 million, respectively, in the second quarter.
Impressive Expected Earnings Growth: EMCOR’s earnings for 2018 are expected to increase 15% year over year, thereby making it a great pick in terms of growth investment. The company’s 2019 earnings are expected to grow 7.3%. The above-mentioned tailwinds have made it a great pick in terms of Growth investment. The stock has a Growth Score of B.
Superior ROE: EMCOR’s return on equity (ROE) supports its growth potential. Its ROE of 15.4% compares favorably with the industry’s average of 9.3%, implying that it is efficient in using its shareholders’ funds.
Solid VGM Score: EMCOR has a VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 make solid investment choices.
Other Stocks to Consider
Other top-ranked stocks in the same space include North American Construction Group Ltd. (NOA - Free Report) , NCI Building Systems, Inc. (NCS - Free Report) and Primoris Services Corporation (PRIM - Free Report) . While North American Construction and NCI Building sport a Zacks Rank #1, Primoris carries a Zacks Rank #2.
North American Construction’s 2018 earnings are expected to grow 228.6%.
NCI Building’s earnings are expected to grow 77.5% this year.
Primoris’ earnings are expected to grow 34.8% this year.
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