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EMCOR (EME) Rides on Construction Activities Amid Supply Woes

EMCOR Group, Inc. EME is well-poised for growth in the near term, given increased project activity within the commercial, manufacturing, healthcare and transportation sectors. Also, solid acquisition strategies have been broadening its foothold.

Although supply chain issues and energy and raw material-related costs continue to suppress margins, strong demand across geographies and end markets served, as well as disciplined project execution are tailwinds.

Let’s take a look at the factors supporting the growth.

Solid Construction Activities: EMCOR and other construction companies, like Dycom Industries, Inc. DY, Quanta Services, Inc. PWR and Sterling Infrastructure, Inc. STRL, are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security, and a potential super-cycle in global supply-chain investments. The need to rebuild the nation’s deteriorating roads and bridges and fund new climate-resilient and broadband initiatives is expected to aid EME.

The U.S. Construction segment of the company has been maintaining strong momentum. The company’s major segments, primarily the U.S. Mechanical and Electrical Construction segments, continued to display significant strength. The trend continued in the first half of 2022.

The RPOs at June-end were up 26.5% from the year-ago period’s levels. EMCOR continues to see demand for electrical and mechanical systems in new construction and retrofit projects.

Within the U.S. Construction umbrella, the U.S. Electrical Construction and Facilities Services segment revenues increased 14.6% year over year for the second quarter. The company benefited from increased project activity within the commercial (exclusive of the telecommunications submarket), manufacturing, healthcare and transportation markets.

The U.S. Mechanical Construction and Facilities Services segment revenues rose 10.1% from the year-ago level. The upside was derived from the majority of the market served, with the water and wastewater, manufacturing and commercial market sector experiencing the most significant period-over-period increases.

Strategic Acquisitions: The company is keen on the acquisition of assets and businesses. The company’s acquisition strategies focus on buying small private firms with proven management and expansion potential.

During the first half of 2022, it acquired two companies that provide fire protection services in the Northeastern and Southern regions of the United States, respectively. Also, it acquired a company specializing in building automation and controls in the Southwestern region, within the United States building services segment.

Meanwhile, on Aug 5, EME acquired a leading full-service electrical construction contractor, Gaston Electrical Co., LLC (formerly Gaston Electric Co., Inc.). Gaston — headquartered in Norwood, MA — designs, installs, constructs and maintains electrical and low-voltage systems in a wide variety of projects. The buyout will strengthen EMCOR’s specialty construction services operations in the Greater Boston area, with expected revenues of $140 million and remaining unsatisfied performance obligations of $120 million in 2022.

Upbeat View: Resilient end markets, solid RPOs and bolt-on acquisitions are also gaining traction. The company expects strong project demand across key market sectors, favorable SG&A leverage and a more normalized fall turnaround season for the U.S. Industrial Services segment in the near term.

Given the solid visibility, EMCOR expects earnings per share within $7.30-$7.80 for 2022, narrower from the $7.15-$7.85 projected earlier. It anticipates revenues of approximately $10.8 billion (up from the prior projection of $10.4-$10.7 billion).

A Brief Discussion on the Above-Mentioned Stocks

Dycom Industries is benefiting from the higher demand for network bandwidth and mobile broadband, extended geography, proficient program management and network planning services. Dycom expects considerable opportunities across a broad array of customers.

Quanta Services remains uniquely positioned to capitalize on megatrends and opportunities to lead the energy transition and enable technological development, with initiatives such as electric vehicle charging infrastructure and undergrounding of electrical infrastructure gaining momentum. More demand for infrastructure solutions that help support customers' energy-transition initiatives and modernization will continue to provide multi-year growth opportunities for Quanta.

Sterling Infrastructure has been benefiting from broad-based growth across the e-infrastructure, building and transportation solutions segments.

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