EMCOR Group (EME) Up 2.5% Since Earnings Report: Can It Continue?
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Stock Market News For Nov 16, 2018
Wall Street finished in the green reversing its five-day negative trend on Thursday following news that United States and China have ramped up their efforts to resolve lingering trade disputes
A month has gone by since the last earnings report for EMCOR Group, Inc. EME. Shares have added about 2.5% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is EME due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
EMCOR Posts Record Q4 Earnings, '18 Outlook Strong
EMCOR posted fourth consecutive earnings beat, as fourth-quarter 2017 adjusted earnings from continuing operations came in at a record $1.13 per share. The figure trumped the Zacks Consensus Estimate of 86 cents by a whopping 31.4%.
The earnings figure improved 56.9% year over year, driven by higher productivity and improved margins. Solid non-residential construction demand and strong project execution boosted profits. In 2017, EMCOR reported adjusted earnings from continuing operations of $4.06 per share, up 31.4% from $3.09 reported in 2016.
Inside the Headlines
The company generated a record $2,013 million in revenues, which edged down 3.2% year over year, but surpassed the Zacks Consensus Estimate of $1,932 million.
Revenues in the fourth quarter were primarily fueled by sound performance from the combined U.S. Construction segments along with solid contribution from recent acquisitions.
In 2017, revenues inched up 1.8% year over year to $7.69 billion.
Coming back to the quarter under review, the U.S. Construction segment (up 6.3% year over year) sustained its robust momentum and delivered strong revenues and operating income growth. The segment was driven by the U.S. Mechanical Construction business (up 10.2%). The U.S. Electrical Construction business remained almost flat year over year.
The company’s U.S. Building Services segment revenues moved down 1.1% year over year, remaining pressurized by soft capital spending and the lingering impact of Hurricane Harvey, which deferred turnaround work.
The U.S. Industrial Services revenues, affected by Hurricane Harvey, persistently exhibited a lackluster performance and contracted 1.1% year over year. The hurricane led to a delay in the fall turnaround work and under absorption of overhead costs for projects which the company was unable to execute, which dented margins.
Revenues from total U.S. operations rose 2.2% year over year to $1,916 million. Revenue growth from the U.K. building services continued on growth trajectory and grew 30% year over year to $96.6 million. The upside was driven by profitable new contracts and solid execution in base business.
As of Dec 31, 2017, EMCOR’s backlog was $3.79 billion, down 2.8% year over year. A rise in the backlog of the U.S. Building Services, U.S. Industrial Services, and U.K. Building Services segments more than offset the dip in backlog for the U.S. Mechanical Construction and U.S. Electrical Construction, resulting in overall growth.
From an end-market perspective, the company witnessed growth in backlog for the commercial, institutional and hospitality markets, which was somewhat offset by the declines in industrial, water & wastewater, healthcare and transportation sectors.
EMCOR’s operating income was $48.5 million, down 16.1% from the prior-year quarter. Operating margins were 2.4%, reflecting a contraction of 140 basis points from the prior-year quarter.
Liquidity & Cash Flow
EMCOR’s cash and cash equivalents totaled $467.4 million as of Dec 31, 2017, compared with $464.6 million as of Dec 31, 2016. Total debt and capital lease obligations were $269.8 million, declining from $283.3 million recorded on Dec 31, 2016.
In 2017, cash flow used in operating activities totaled $366.1 million, significantly higher than $264.6 million recorded in the year-ago quarter.
Guidance
Encouraged by its accretive acquisitions and increasing traction in the U.S. construction space, EMCOR’s management issued guidance for 2018, with earnings from continuing operations in the range of $4.10-$4.70.
In light of the current size and mix of its backlog and overall positive market conditions, EMCOR expects revenues in the range of $7.6-$7.7 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimate flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.
EMCOR Group, Inc. Price and Consensus
EMCOR Group, Inc. Price and Consensus | EMCOR Group, Inc. Quote
VGM Scores
At this time, EME has a great Growth Score of A and a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for growth and momentum investors while value investors may want to look elsewhere.
Outlook
EME has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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