Can Solid Construction Activity Sustain Growth for EMCOR (EME)?
EMCOR Group, Inc. EME has rallied 83% in the past year, comfortably outperforming the Zacks Building Products - Heavy Construction industry’s 38.3% growth.
The company is reaping the rewards of sustained growth across its various sectors, spanning from the network communications and data center industries as well as from robust demand in healthcare and high-tech manufacturing.
The Zacks Consensus Estimate for 2023 earnings per share (EPS) of $10.97 moved up from $10.16 in the past 60 days. The solid price performance and analysts’ optimistic view testify that EMCOR — a Zacks Rank #1 (Strong Buy) stock — has excellent growth potential in the long run.
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Let’s Delve Deeper Into the Major Driving Factors.
Infrastructure Prospects: The company is benefiting from increased demand for the renewable energy drive across the country. The development and deployment of technology solutions across the full spectrum of decarbonization efforts, comprising all facets of infrastructure for providing carbon-free energy solutions, should benefit the company going forward.
The company has also been benefiting from growth in the network communications and data center markets, strong demand in healthcare and high-tech manufacturing, including semiconductors and all things around the EV or electric vehicle value chain and traditional manufacturing and industrial projects driven by the onshoring supply chains and domestic capacity expansion.
The company’s domestic construction segments have been experiencing strong project growth, with total Remaining Performance Obligations or RPOs having increased 5.2% sequentially and 28.2% annually to $8.29 billion during the second quarter of 2023.
Acquisitions: The company is actively pursuing acquisitions, primarily targeting small private firms with strong management and growth prospects. In the first half of 2023, EME completed five acquisitions. Two of these acquisitions were within the U.S. Mechanical Construction and Facilities Services segment, one specializing in mechanical and pipe fabrication services and the other in fire protection services, both located in the Midwest. Additionally, EME acquired three companies in its U.S. Building Services segment, offering mechanical services in the Western and Midwestern U.S. regions.
Strong Growth Rate & ROE: The Zacks Consensus Estimate for EPS of $10.97 for 2023 indicates 35.4% year-over-year growth. Meanwhile, EMCOR’s superior return on equity (ROE) is indicative of its growth potential. The company’s ROE stands at 24.2% compared with the industry’s 11.9%. This indicates efficiency in using its shareholders’ funds.
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