Industrials have been my favorite sector for the fourth quarter of this year; my latest recommendation is an industrial company with excellent financial metrics, including a strong balance sheet, explains Hilary Kramer, editor of Value Authority.

EMCOR Group (EME) is a leader in construction and services for commercial and industrial buildings. It provides critical infrastructure for electrical, mechanical, heating and air conditioning, security and fire protection for both new and existing buildings in a wide range of industries.

The company also provides commercial building service operations that provided 27% of its 2017 revenues, including facility maintenance such as reception and security, vendor management and technical consulting. EMCOR Group’s industrial services unit delivered 10% of its 2017 revenues by providing onsite repairs and maintenance to refineries and petrochemical plants.

The company is currently benefiting from secular factors, as well as cyclical factors, with the economy strong. The electrical and mechanical construction services industry has grown over the years, due principally to the increased content, complexity and sophistication of electrical and mechanical systems. 

In addition, advanced voice and data communication systems require sophisticated power supplies and extensive low-voltage and fiber-optic communications cabling. Moreover, climate control to maintain computer systems at optimal temperatures and the demand for energy savings and environmental controls in individual spaces, have expanded opportunities for EME’s electrical and mechanical businesses.

Although the company has not had much in the way of organic top-line growth in recent years, strong contract execution combined with share buybacks has led to consistent earnings per share (EPS) growth in recent years.

EME is in a solid financial position, with current assets greater than all liabilities and interest charges earned nearly 30 times. Given the solid finances, the share buybacks and acquisitions to augment growth should continue.

Assuming the company earns $4.60, the midpoint of guidance this year, $5.00 is very doable next year if the economy stays firm. At just over 15 times EPS, I believe there is room for EMCOR to climb. Buy the stock under $75 as I target a move up to $85. Note: this stock should not be confused with EMCORE (EMKR), a fiber optic cable company.

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