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Here's Why Improving Economic Trends Will Aid EMCOR Business

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Strengthening construction activities, particularly in the United States, are driving growth of EMCOR Group (EME - Free Report) . The company’s U.S. Mechanical and Electrical Construction segments are gaining strength on impressive industry data, reflecting significant market prospects in the near future. Also, strategic acquisitions and a stable balance sheet position are encouraging.

So far this year, its shares have outperformed the Zacks Building Products - Heavy Construction industry. This outperformance can be primarily attributed to EMCOR’s impressive earnings surprise history and robust year-over-year performance. Notably, the company’s bottom line surpassed the Zacks Consensus Estimate in 12 of the trailing 13 quarters.

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

Strength in Residential and Non-Residential Construction Businesses: EMCOR has been delivering solid performance over the last few quarters owing to higher project activity within manufacturing, health care, transportation and institutional markets.

Despite being severely hurt by the COVID-19 pandemic in the past few months, the overall construction market has started reviving. The recent sales numbers and builder confidence have boosted the sentiments of buyers as well as investors. Meanwhile, the May public construction spending data, up 1.2% from the prior month, and improving employment situation are uplifting analysts’ views.

Importantly, EMCOR’s U.S. Electrical Construction and U.S. Mechanical Construction segments are benefiting from accretive acquisitions and higher project activity. Additionally, the company’s U.S. Building Services, U.S. Industrial Services and U.K. Building Services are performing pretty well.

In first-quarter 2020, the U.S. Construction segment delivered robust revenue performance, with a combined 6.2% year-over-year increase, given solid project execution across its portfolio of construction. Operating profit also grew 6.1% year over year. During first-quarter conference call, management noted that the company is witnessing increased bidding activity for the construction business and rising demand in strong energy efficiency retrofit market, which will directly aid the Building Services unit.

Trump’s $1-Trillion Infrastructure Bill Raises Hope: U.S. President Donald Trump continues to push ahead with his long-standing agenda of spending almost $1 trillion on infrastructure, including roads, bridges, highways and railways, along with 5G wireless infrastructure and rural broadband. Earlier in January, the House Democrat leaders proposed a $760-billion plan to renew infrastructure spending.

Trump is in favor of cashing in on the low interest rate environment that allows the U.S. government to borrow at a minimal rate. Notably, the proposed bill will be beneficial for EMCOR and other industry players like Dycom Industries, Inc. (DY - Free Report) , Great Lakes Dredge & Dock Corporation (GLDD - Free Report) and MasTec, Inc. (MTZ - Free Report) .

Strategic Acquisitions: EMCOR consistently acquires assets and businesses in order to expand small private firms with proven management and expansion potential. Recently, it acquired a building automation and controls solutions company within the building services segment. Also, it executed the acquisition of seven companies in 2019. These buyouts strengthened its overall results by adding new markets, opportunities and capabilities. In first-quarter 2020, the company generated incremental revenues of $82.5 million from acquisitions and plans to acquire more such companies in the future.

Encouraging Prospects: EMCOR has strong prospects, as is evident from the Zacks Consensus Estimate for 2020 earnings of $4.30 per share, which has been revised upward in the past 30 days. Moreover, its earnings are expected to increase 12.8% year over year in 2021.

Overall, EMCOR is a great investment pick right now, as suggested by a VGM Score of B.

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