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5 Factors That Underscore EMCOR's Solid Growth Prospects

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EMCOR Group’s (EME - Free Report) shares have gained 3.6% in the past three months compared with its industry’s 3.7% growth. The price performance is mainly backed by the company’s impressive earnings surprise history and robust year-over-year performance.



EMCOR surpassed the Zacks Consensus Estimate in each of the trailing eight quarters. Recently, the company posted stellar fourth-quarter 2018 results, with both the top and bottom lines beating the consensus estimate by 8.5% and 1.5%, respectively.

Adjusted earnings of $1.38 per share increased 53.3% and revenues of $2.23 billion grew 10.8% from the year-ago quarter. The top-line performance mainly stemmed from robust revenues in U.S. Construction segments. The bottom-line figures were driven by continued strength in U.S. Industrial segments along with improved segmental margins.

Earnings estimates for 2019 have also trended upward by 1% over the past 30 days, reflecting optimism surrounding the company’s earnings growth potential.

Let us delve deeper into other factors that make this Zacks Rank #2 (Buy) stock a profitable pick. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Strong Performance & ’19 View: EMCOR has been reporting solid top-line numbers over the last few quarters. Its net sales grew 5.8% from a year ago to $8.13 billion in 2018. Also, adjusted earnings increased 20.9% from a year ago. Adjusted operating margins were in line with the prior-year figure of 5%.

The improved performance was mainly driven by continued demand for its services along with strong execution across the portfolio of construction projects. Specifically, its U.S. Building Services segment posted higher revenues and double-digit operating income growth during the year. Strong project growth within the segment’s mechanical and energy services unit bodes well for the positive performance of the company, offsetting lower revenue generation from commercial site-based and Government Services business.

Buoyed by solid market conditions and favorable project mix, EMCOR has provided full-year 2019 guidance. The company expects earnings from continuing operations within $4.70-$5.40 a share. The mid-point of the guided range compares favorably with $4.89 recorded in 2018. EMCOR projects revenues between $8.3 billion and $8.4 billion in 2019, reflecting an increase of 2.1-3.3% from the 2018 level.

Robust Construction Business: The company’s construction business comprises U.S. Electrical Construction and Facilities Services (24% of the total revenues) and U.S. Mechanical Construction and Facilities Services (37.1%). Both the segments continued to display significant strength in 2018. Revenues from U.S. Electrical Construction grew 6.8% year over year and that of U.S. Mechanical Construction business increased 1.9% in 2018. Notably, operating margin in U.S. Building Services in 2018 improved 30 basis points to 5%. This was driven by higher project activity within health care, commercial and transportation markets.

Inorganic Moves: The company keeps on acquiring assets as well as businesses in order to expand small private firms with proven management and expansion potential. In 2018, EMCOR acquired four companies, which expanded its capabilities and geographical presence.

During the full year of 2018, acquisitions added $90.1 million to total revenues. The company expects the buyouts to be accretive to 2019 earnings as well.

Solid VGM Score: It has an impressive 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 VGM Scores of A or B when combined with a Zacks Rank #1 or 2 offer solid investment choices.

Solid Growth Prospects: EMCOR has strong growth prospects, as is evident from the Zacks Consensus Estimate for 2019 earnings of $5.22 per share, which reflects 6.3% year-over-year growth. Moreover, its earnings are expected to increase 5.4% in 2020. Notably, the company has a three-five year expected EPS growth rate of 15%.

Overall, it constitutes a great pick in terms of growth investment, supported by Growth Score of A.

Other Stocks to Consider

Other top-ranked stocks in the Zacks Construction industry include Great Lakes Dredge & Dock Corporation (GLDD - Free Report) , Quanta Services, Inc. (PWR - Free Report) and North American Construction Group Ltd. (NOA - Free Report) . While Great Lakes and Quanta Services sport a Zacks Rank #1, North American Construction carries a Zacks Rank #2.

Great Lakes, Quanta Services and North American Construction’s earnings for the current year are expected to increase 170.6%, 13.9% and 214.3%, respectively.

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