Boom times in the building of hyperscale data centers, domestic semiconductor plants and clean energy components, plus parallel trends in artificial intelligence and cryptocurrency mining, are among several reasons for the strength behind Emcor (EME), asserts Mike Cintolo, growth stock expert and editor of Cabot Top Ten Trader.
The Connecticut-based global engineering and specialty contractor is focused on electrical and mechanical construction along with building, industrial and facilities services, and it has exposure to each of the aforementioned trends through its many footprints (it comprises over 80 separate companies).
Emcor recently turned heads on Wall Street with strong top- and bottom-line beats in its Q1 report, which featured record sales and operating margins in two of its key construction segments.
The firm’s domestic Electrical and Mechanical construction segments generated combined sales of $2.2 billion, up 27% from a year ago, contributing to total revenue of $3.4 billion (up 19%), while per-share earnings of $4.17 surprised estimates by a ridiculous 47% (another reason for the strength).
Also contributing was the firm’s Industrial Services segment, which reported its best sales quarter in five years, led by the completion of some large projects, while the U.S. Building Services segment returned “solid” high-single-digit operating margins, led by strong demand for Emcor’s energy efficiency, building controls and retrofit projects.
Helping the cause was continued strong demand for data center construction, which Emcor attributed to the expansion of AI (which necessitates greater computing power). Management also mentioned health care as a “good long-term market” for the company, noting that hospitals often involve advanced manufacturing systems that the firm provides.
On the M&A front, Emcor just closed three acquisitions in the mechanical construction and building services sectors, with another major acquisition pending. Analysts see double-digit sales and earnings growth this year, but given that Emcor usually trashes estimates, most think that will prove conservative.
Technically, EME spent the six months between August and February building a tight, narrow base; shares broke free in early February and embarked on a stunning upmove with basically zero pullbacks, lifting shares to an all-time level of $370. The recent shakeout found support near the 10-week line, with some upside following earnings. If you want in, you can take a swing at EME here or on dips with a stop just under the 50-day line.
