Emcor Group: Global reach and local execution in the construction industry

Construction tends to be a business conducted by local outfits, but a limited number of firms have managed to establish international reputations. One of them is headquartered in Norwalk, Connecticut.

Emcor Group (NYSE: EME) is a leader in mechanical and electrical construction, energy infrastructure, and facilities services. It installs, operates and maintains electrical, mechanical, lighting, air conditioning, heating, communications, plumbing, security and power generation systems for a diverse range of businesses and government entities. The firm employs some 27,000 skilled workers, operating locally from 140 locations worldwide. Clients include Bristol-Myers Squibb (NYSE: BMY), Wachovia Corporation (NYSE: WB) and the U.S. Senate. Johnson Controls (NYSE: JCI) is a major competitor.

The company pleased investors earlier in the week, when it boosted FY07 EPS guidance from $2.45-$2.80 to $2.75-$3.00 ($2.86 Street consensus) and raised FY07 revenue guidance from $5.3-$5.5 billion to $5.5-$5.7 billion ($5.6B consensus). Management said the improved figures reflected continuing indications of strong demand patterns within many of the firm's markets. Emcor also declared a 2-for-1 stock split, payable July 9th. Friedman Billings subsequently reiterated its "outperform" rating on the issue. The stock popped above 30-day/50-day moving average support into a bullish "pennant" consolidation pattern on the news. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the issue with two "strong buys" and three "holds." Analysts expect a 21% growth rate, through the next year. The EME Price to Sales ratio (0.43), Price to Book ratio (3.10), Price to Free Cash Flow ratio (10.68), Sales Growth rate (14.51%), EPS Growth rate (50.00%) and Return on Investment (11.01%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 600 Small Cap Index. Over the past fifty-two weeks, it has traded between $42.45 and $71.78. A stop-loss of $62.50 looks good here. Note that the firm is next expected to report quarterly results in late July.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.