On Jun 13, 2014, we issued an updated research report on EMCOR Group Inc (NYSE: EME). The company's business has been benefiting from its strong fundamentals and recent contract wins. Moreover, EMCOR had reported strong second-quarter fiscal 2014 results with growth in both earnings and revenues.
The company's diversified business along with the robust performance of its U.S. electrical construction, U.S. Mechanical Construction, U.S. Building Services and U.S. Industrial Services segments were some of the key drivers behind its growth. In the quarter, the company also benefited from the increase in snow removal projects owing to the harsh winter this time.
Apart from these, EMCOR has been consistently focused on streamlining its business through measures like exit from the U.K. construction market while strengthening its core businesses at the same time. The company has also been gaining significantly from increasing investments in oil and gas infrastructure like the ongoing revamping of petrochemical refineries in the Gulf Coast. Moreover, EMCOR is reaping benefits from the successful integration of RepconStrickland, the leading industrial and refinery service company acquired in Jul 2013.
However,on the flip side, the company's organic growth has been persistently declining for the last seven quarters. Also, part of EMCOR's revenues depends on new constructions. In the quarter, sales in the domestic mechanical construction business had been impacted owing to the decline in the nonresidential construction projects in the U.S., primarily in the southeastern region.
The company derives a considerable share of revenues from government projects and hence, its financials can be affected by changes in government rules and regulations. Recently, the company's goodwill was also impacted to some extent owing to the disposition of a subsidiary in EMCOR's building services segment. Additionally, the company has a significant portion of fixed-price contracts, which could weigh on its margins.
Nonetheless, the company's commitment toward improving its performance while increasing shareholders' return reflects its free cash flow generating capability, sound liquidity position and better prospects. Looking ahead, the company remains confident of its growth potential, suggesting enhanced value for shareholders. The expected long-term earnings growth rate for the stock is 15.0%.
EMCOR currently has a Zacks Rank #2 (Buy). Investors interested in this sector could consider similarly-ranked stocks like Sterling Construction Co. Inc. (NASDAQ: STRL),Quanta Services, Inc. (NYSE: PWR) and Tutor Perini Corporation (NYSE: TPC). All three have same Zacks Rank as EMCOR.
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