EMCOR (EME) Up 38% Year to Date: What's Driving the Stock?

Solid construction activity, particularly in the non-residential markets, and strategic acquisitions bode well for EMCOR Group EME.

So far this year, shares of the company have gained 37.6% compared with its industry’s 13.6% growth. This outperformance can be primarily attributed to EMCOR’s impressive earnings surprise history and robust performance year over year. Notably, the company’s bottom line surpassed the Zacks Consensus Estimate in each of the trailing nine quarters.

Furthermore, EMCOR posted stellar first-quarter 2019 results, wherein the top and bottom lines outpaced the consensus mark and also increased significantly on year-over-year basis.

Adjusted earnings in the first quarter came in at $1.28 per share, exceeding the consensus estimate of $1.05 by 21.9% and improved 36.2% from the year-ago quarter. The upside was driven by continued strength across the board.

Revenues of $2.16 billion surpassed the Zacks Consensus Estimate of $1.97 billion by 9.5% and also increased 13.6% year over year. The improvement was mainly driven by solid growth across business including double-digit growth at its U.S. Electrical Construction, U.S. Building Services and U.S. Industrial Services segments.

Let us delve deeper into factors that make this Zacks Rank #1 (Strong Buy) stock a profitable pick.

Steller Segmental Performance & Upbeat View: During the first quarter of 2019, its organic sales grew 11% year over year on the back of strong segmental results.

The U.S. Electrical Construction, and the U.S. Mechanical Construction and facilities services segment posted higher revenues during the current year. Notably, strong contribution from a recent acquisition and higher project activity, within the health care, commercial and transportation markets, drove the results. Additionally, its U.S. Building Services, U.S. Industrial Services and U.K. Building Services registered higher year-over-year revenue numbers, given increased activities during the quarter.

Encouraged by robust performance so far, accretive acquisitions and increasing traction in construction space, the company raised its view for 2019 earnings as well as revenues. It expects revenues within $8.5-$8.6 billion, up from the prior guided range of $8.3-$8.4 billion. Moreover, it anticipates earnings from continuing operations in the range of $5.00-$5.50 per share, up from the prior expectation of 4.70-$5.40 and $4.89 registered a year ago. Solid market conditions and favorable project mix set the tone for the company’s stellar performance in future.

Strength in Construction Market: EMCOR’s construction business comprises U.S. Electrical Construction and Facilities Services (24.5% of the total revenues), and U.S. Mechanical Construction and Facilities Services (34.9%). Both the unit continued to display significant strength in the first quarter. While revenues at U.S. Electrical Construction grew 16.1% year over year, the same at U.S. Mechanical Construction business increased 9.9% in the said quarter. The upside was driven by higher project activity within the health care, commercial and transportation markets.

Strategic Acquisitions: EMCOR consistently acquires assets as well as businesses in order to expand small private firms with proven management and expansion potential. In the first quarter, the company executed an acquisition and wrapped up another one in the early part of second-quarter 2019.

In 2018, EMCOR acquired four companies that expanded its capabilities and geographical presence. During first-quarter 2019, acquisitions added $48.4 million to total revenues. The company expects the buyouts to be earnings accretive in the rest of 2019.

Solid Growth Prospects: EMCOR has strong growth prospects, evident from the Zacks Consensus Estimate for 2019 earnings of $5.45 per share, indicating 11% growth form the year-ago quarter reported figure. Moreover, its earnings are expected to increase 5.7% in the second quarter of 2019. The company also has a three-five year expected EPS growth rate of 15%.

Overall, EMCOR is a great pick in terms of growth investment, supported by a Growth Score of B.

Other Stocks to Consider

Other top-ranked stocks in the same space are Great Lakes Dredge & Dock Corporation GLDD and North American Construction Group Ltd. NOA and MasTec, Inc. MTZ. While Great Lakes and North American Construction sport a Zacks Rank #1, MasTec carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Great Lakes, North American Construction and MasTec’s earnings growth rate is expected to be 300%, 221.4% and 16.7%, respectively, for the current year.

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