EMCOR (EME) Up 46% This Year: Will the Rally Continue in 2024?
Despite the turmoil in the oil and gas markets caused by the Ukraine-Russia conflict and the Hamas-Israel war, EMCOR Group, Inc. EME stands resilient, witnessing robust demand across various sectors, including semiconductors, data centers, manufacturing re-shoring, healthcare and the electric vehicle (EV) value chain. Also, a rising demand for its downstream refinery and petrochemical services contributes to its sustained growth momentum.
So far, in 2023, shares of this leading mechanical and electrical construction services provider have surged 45.8% compared with the Zacks Building Products - Heavy Construction industry’s 23% growth.
Earnings estimates for 2023 have increased from $10.97 to $12.38 per share in the past 60 days, depicting analysts’ optimism regarding the stock’s growth potential. The company’s earnings have surpassed analysts’ expectations in each of the trailing four quarters, with an average of 25%.
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Let’s Discuss the Major Driving Factors.
Resilience in U.S. Construction Segments: The company maintained strong momentum in the U.S. Construction segment, particularly in the Mechanical and Electrical Construction sectors. The domestic construction segments experienced significant project growth over the trailing three years, with Remaining Performance Obligations (RPOs) increasing 33.2%, 22% and 15.2% year over year in 2022, 2021 and 2020, respectively.
This trend persisted into the third quarter of 2023, where RPOs rose 4.2% sequentially and 21.7% annually, reaching $8.29 billion. EME benefited from heightened project flows in high-tech manufacturing and network and communications, driven by solid demand for semiconductor and data center construction projects.
EME continues to thrive across its segments. The company leverages its underlying strength in retrofit markets, focusing on energy efficiency and Indoor Air Quality (IAQ) for emissions reduction. The company actively participates in traditional manufacturing and industrial projects, benefiting from the onshoring of supply chains and domestic capacity expansion. The company also continues to see an increase in demand for its downstream refinery and petrochemical services.
Strategic Acquisition to Drive Growth: EMCOR is actively pursuing asset and business acquisitions, focusing on small private firms with proven management and expansion potential. In the first nine months of 2023, EMCOR acquired seven companies, all at immaterial amounts. Two of these acquisitions, specializing in mechanical and pipe fabrication services and fire protection services, are situated in the Midwestern region of the United States, falling under the U.S. Mechanical Construction and Facilities Services segment. The remaining four acquisitions, catering to mechanical services in the Western and Midwestern regions, are under the U.S. Building Services segment.
Strong Growth Rate & ROE: The company’s earnings and sales in 2023 are likely to witness growth of 52.8% and 12% year over year, respectively. The trend continues for 2024 as well, where earnings are likely to grow 1.5% year over year on 5% higher revenues. The uptick mentioned above factors are substantiating the future rally of this Zacks Rank #1 (Strong Buy) company.
Impressively, EME has a long-term earnings growth rate of 14.9% and currently holds a VGM Score of A, supported by a Growth and Momentum Score of A.
EMCOR’s superior return on equity (ROE) is indicative of its growth potential. The company’s ROE stands at 26.1% compared with the industry’s 5.9%. This reflects the company’s efficiency in using shareholders’ funds.
Other Key Picks
Some other top-ranked stocks from the Zacks Construction sector are:
Fluor Corporation FLR sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 37.5%, on average. Shares of FLR have surged 11.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FLR’s 2023 sales and earnings per share (EPS) suggests growth of 12% and 197.6%, respectively, from the year-ago period’s levels.
M-tron Industries, Inc. MPTI currently sports a Zacks Rank of 1. MPTI delivered a trailing four-quarter earnings surprise of 35.6%, on average. It has surged 271.8% in the past year.
The Zacks Consensus Estimate for MPTI’s 2023 sales and EPS indicates growth of 30.6% and 156.7%, respectively, from the previous year’s levels.
AECOM ACM carries a Zacks Rank of #2 (Buy). It has a trailing four-quarter earnings surprise of 2.1%, on average. Shares of ACM have surged 7.6% in the past year.
The Zacks Consensus Estimate for ACM’s 2024 sales and EPS indicates an increase of 4.5% and 17.5%, respectively, from the year-ago period’s levels.
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