On Sep 24, we issued an updated research report on Emcor Group Inc. (EME), a leading construction and manufacturing company.
Emcor is benefiting from the strong performance of most of its segments, especially Electrical construction, Mechanical Construction and Industrial Services. Moreover, the recent portfolio restructuring in the building services segment is likely to drive the company’s growth going forward. However, with the company’s organic growth continuously declining, the prevalent sluggishness in the non-residential markets remains a headwind.
Emcor is also gaining significantly from the diversity in its business. The company’s business in the industrial markets is expected to grow consistently over the long term, mainly driven by increasing investments in oil and gas infrastructure like the ongoing restructuring of petrochemical refineries in the Gulf coast. Recent technological developments in food processing, auto, and paper markets like variable speed drives, scroll compressors and digital controllers are the other catalysts. In the recent past, Emcor’s business in the Transportation and Hospitality/Gaming sectors has also demonstrated considerable strength and the momentum is expected to be maintained.
Further, the company is focused on streamlining its business by taking strategic decisions like its recent exit from the U.K. construction market. The recurring losses in that market were proving to be a drag for the company. This decision is likely to boost Emcor’s performance significantly in the long run. The company has already closed 95% of this business and expects to completely close the business by third-quarter 2014. Further, the company’s skill and resources for complex and critical tasks like large scale snow removal lends it a competitive edge. Meanwhile, Emcor has been reaping the benefits of its diligent operational execution amid inclement weather conditions. This year was specifically profitable for the company as a harsh winter led to a significant increase in demand for the company’s services.
However, Emcor’s organic growth has been persistently declining over the last seven quarters. The key reason behind this could be the sluggish backlog levels which have been particularly slow since last year. Also, in the last reported quarter (second quarter) the company’s organic growth declined 4.4% owing to the U.K. construction business exit.
Some other companies in the diversified business group that are performing well and worth considering include Willdan Group Inc. (WLDN), VSE Corp. (VSEC) and ITT Corp. (ITT).
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