U.S. Markets closed

What's in the Cards for EMCOR (EME) this Earnings Season?

Zacks Equity Research

EMCOR Group, Inc. EME is set to report fourth-quarter 2016 results, before the opening bell on Feb 23.

In the last reported quarter, EMCOR posted a positive earnings surprise of 11.8%. The company has a decent earnings track record, beating estimates thrice in the trailing four quarters. The stock boasts an average positive surprise of approximately 12.0%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

EMCOR’s diversified business structure enables it to tap opportunities and neutralize operating risks associated with economic down-cycles, thus stoking growth. The company’s segments – the U.S. Mechanical Construction segment and U.S. Electrical Construction segments – have witnessed solid top-line improvement, operating income and net income growth for the past nine months. Also, outstanding performance in the building services, driven by strong demand for mechanical retrofit project services, is expected to drive fourth-quarter results.

While increased project activity within the commercial and transportation market sector has been supplementing growth of the U.S. Electrical Construction segment; the U.S. Mechanical Construction segment’s growth is being supported by sturdy performance across all end market markets, including commercial, water, and industrial. We believe these trends are likely to benefit the fourth-quarter 2016 results as well.

Apart from this, the company is keen on acquisition of assets and businesses. EMCOR’s acquisition strategies are directed toward buying small private firms with proven management and expansion potential. During the year 2016, EMCOR acquired Ardent Services, L.L.C. and Rabalais Constructors, LLC, which are established providers of electrical and instrumentation services to the energy infrastructure market in North America.

These buyouts have further fortified EMCOR’s dominating market position in electrical construction and services.The company estimates the acquisitions to be marginally accretive to EMCOR’s 2016 earnings. Solid top-line performance, accretive acquisitions and increasing traction in the U.S. construction space, led EMCOR to raise its 2016 earnings guidance.

Despite these positives, EMCOR has been facing higher restructuring expenses that will likely hurt its profitability and contract margins for the soon-to-be-reported quarter. In addition, adverse impact of foreign currency volatility remains a concern, particularly the weakening British pound. Furthermore, low levels of capital spending by customers are anticipated to affect the company’s Commercial site-based services within the Building Service segment.

This reduction in capital spending has been continuing from 2015 as a result of crude oil price volatility. Also, lower percentage of shop services activities is expected to put pressure on margins in the Industrial Services segment.

Earnings Whispers

Our proven model does not conclusively show that EMCOR will beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 83 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

EMCOR Group, Inc. Price and EPS Surprise

EMCOR Group, Inc. Price and EPS Surprise | EMCOR Group, Inc. Quote

Zacks Rank: EMCOR’s Zacks Rank #3, when combined with 0.00% ESP, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Summit Materials, Inc. SUM has an Earnings ESP of +8.70% and a Zacks Rank #3. The company is set to report fourth-quarter 2016 earnings, before the market opens on Feb 22.

William Lyon Homes WLH has an Earnings ESP of +1.52% and a Zacks Rank #2. The company is set to report fourth-quarter 2016 earnings, before the market opens on Feb 22. You can see the complete list of today’s Zacks #1 Rank stocks here.

ARRIS International plc ARRS, expected to release earnings around Feb 22, has an Earnings ESP of +1.56% and carries a Zacks Rank #2.

Zacks’ Best Private Investment Ideas

In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?

Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
ARRIS International PLC (ARRS): Free Stock Analysis Report
 
EMCOR Group, Inc. (EME): Free Stock Analysis Report
 
Summit Materials, Inc. (SUM): Free Stock Analysis Report
 
Lyon William Homes (WLH): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research