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Here's Why Investing in EMCOR (EME) Makes Sense

Leading mechanical and electrical services provider, EMCOR Group, Inc. EME managed to impress investors with solid second-quarter 2017 results, wherein its earnings beat estimates by 18.8%.

Investors have been encouraged by the company’s striking performance of late, and consequently, its shares have appreciated 13.8% over the past one year, in stark contrast to the industry’s average decline of 2.9%. However, the industry presently belongs to the top 15% of the Zacks Industry Rank system. So we believe that the industry is seeing favorable broader trends, which should have a positive impact on EMCOR, in the quarters to come.

We believe that the company has several growth drivers in place and enjoys a robust foothold in its served markets, which should help it to maintain the growth momentum in the times to come. Read on to find out the key factors which make this Zacks Rank #2 (Buy) company an attractive proposition for investors right now.

Factors at Play

EMCOR saw robust revenue growth in the second quarter, driven by sound performance from the combined U.S. Construction segments, along with solid contribution from its recent acquisitions. Particularly, the U.S. electrical and mechanical construction segments saw robust execution, with organic revenue growth of 5% and 15%, respectively.

The U.S. Construction segment (up 13.8% year over year) sustained its robust momentum and delivered strong revenue, while the U.S. Electrical Construction business grew 6.8% year over year.

Encouraged by the current size and mix of its backlog and overall positive market conditions, EMCOR’s management raised its revenue guidance for 2017 to $7.6 billion, up from the previously expected range of $7.5–$7.6 billion.

In light of the impressive top-line performance, accretive acquisitions and increasing traction in the U.S. construction space, EMCOR’s management also raised its 2017 guidance, with earnings from continuing operations projected in the range of $3.40–$3.60 (up from previous projections of $3.20–$3.50). The mid-point of the guided range reflects a 13% year-over-year increase in earnings from continuing operations.

Impressive VGM Score: The company has a VGM score of A. The score identifies stocks that have the most attractive value, growth and momentum characteristics, and a good score indicates stronger chances of success. Our research shows that stocks with Style Scores of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.

Positive Analyst Sentiment: Analysts have become increasingly bullish on the company over the last month, as the Zacks Consensus Estimate for full-year 2017 earnings has trended up from $3.46 to $3.56, driven by three upward estimate revisions and no downward revision.

Bolt-on Acquisitions: EMCOR’s acquisition strategies are directed toward buying small private firms with proven management and expansion potential. Over time, these buyouts have fortified EMCOR’s market-leading position in electrical construction and services, and expanded its capabilities in the energy and industrial sectors.

We are highly optimistic about EMCOR’s recent acquisition of Ardent, which will fortify EMCOR’s position in electrical construction and services, and expand its capabilities in the energy and industrial sectors, particularly in the gulf coast, western and mid-continent regions. The company anticipates the Ardent buyout to be accretive to its 2017 earnings by at least 10 cents per share.

Other Stocks to Consider

Other top-ranked stocks in the same space include TopBuild Corp. BLD, Beazer Homes USA, Inc. BZH and Owens Corning Inc OC. While TopBuild and Owens Corning sport a Zacks Rank #1 (Strong Buy), Beazer Homes USA carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

TopBuild Corp has a positive average earnings surprise of 10.4% for the last four quarters, having beaten estimates every time.

Beazer Homes USA has a stellar earnings surprise history with an average positive surprise of 103.5%, having surpassed estimates twice in the last four quarters.

Owens Corning has an average positive surprise of 20.2%, having beaten estimates every time in the trailing four quarters.

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