CECO Environmental Corp. CECE currently seems to be a smart choice for investors seeking exposure in the pollution control space. Solid fundamentals and positive revision in earnings estimates are reflective of healthy growth potential of the stock.
This Dallas, TX-based company currently carries a Zacks Rank #2 (Buy). It belongs to the Zacks Pollution Control industry, currently placed in the top 43% (with Zacks Industry Rank #110) of more than 250 Zacks industries. Notably, the top 50% of the Zacks-ranked industries tend to outperform the bottom 50% by a factor of more than 2 to 1.
We believe that stringent government regulations, pollution-related risks and growing demand in emerging nations are aiding pollution control equipment and services.
Below we discussed why investing in CECO Environmental will be a smart choice.
Share Price Performance, Impressive Earnings Outlook: Market sentiments seem to be working in favor of CECO Environmental over time. In the past year, its share price has gained 44.2% compared with the industry’s growth of 19.8%.
It is worth mentioning here that the company’s shares have gained 14.9% since the release of first-quarter 2019 results on May 8, 2019. Its quarterly earnings of 12 cents per share were 50% above the Zacks Consensus Estimate of 8 cents. Average earnings surprise for the last four quarters was a positive 25%.
Solid backlog, which stood at $193.8 million at the end of the first quarter, and contract wins will be beneficial for the company going forward.
In the past 60 days, earnings estimates for 2019 and 2020 have been revised upward, reflecting positive sentiments about the company’s growth prospects. Currently, the Zacks Consensus Estimate for earnings for CECO Environmental is pegged at 53 cents for 2019 and 58 cents for 2020, suggesting growth of 29.3% and 3.6% from the respective 60-day-ago figures. In addition, earnings estimates for the second quarter of 2019 have grown from 9 cents per share to 11 cents.
CECO Environmental Corp. Price and Consensus
CECO Environmental Corp. price-consensus-chart | CECO Environmental Corp. Quote
Strengthening End Markets: The company serves customers primarily in the industrial, energy and fluid handling markets. For the energy market, it provides silencers, dampers, expansion joints and other products while it offers high-temperature pumps, filtration systems and fiberglass pumps in the fluid handling market. For industrial use, the company’s dust collectors, scrubbers, ventilation systems and other products are helpful.
Demand in the above-mentioned end markets is solid, with the rising need for reduction in noise pollution, lower environmental emissions, eliminating particulate, water processing, air cleaning and increasing productivity.
For 2019, the company anticipates healthy growth opportunities in refinery, midstream oil and gas, and gas power generations businesses to boost results in the energy end market. Also, businesses in the fluid handling and industrial markets are predicted to be healthy.
Debt Profile: CECO Environmental’s long-term debts were $74.7 million at the end of the first quarter of 2019. The company’s debt profile is better than the industry. Its long-term debt/capital of 32.5% is lower than the industry’s 39.4%.
Progressing Well Toward Achieving Long-Term Growth Objectives: The company remains committed toward making investments for building technical capabilities and innovation of products. Also, it sees business expansion through acquisitions as a favorable option.
The company has set some long-term targets and is currently progressing well toward exceeding the same. By 2021, it predicts to grow revenues organically by 4-7%; generate earnings before interest, tax, depreciation and amortization (EBITDA) margin of 12-14%; and achieve FCF/EBITDA of 65-85%. Also, it intends on returning superior value to shareholders, with a target of return on tangible capital exceeding 50% by 2021.
Other Key Picks
Some other top-ranked stocks in the Zacks Industrial Products sector are Roper Technologies, Inc. ROP, Energy Recovery, Inc. ERII and Tetra Tech, Inc. TTEK. While Roper currently flaunts a Zacks Rank #1 (Strong Buy), Energy Recovery and Tetra Tech carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for all these stocks have improved for the current year. Further, average earnings surprise for the last four quarters was a positive 8.43% for Roper, 225% for Energy Recovery and 8.22% for Tetra Tech.
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