Amid rising raw material costs, supply chain constraints and labor shortages, the engineering and construction industry has taken a beating in recent months. However, with a steady increase in construction spending and rising federal investment, the industry is expected to recover quickly. Given this growth prospect, it might be a good idea to add the hard-hit high-performance engineering and construction stocks EMCOR (EME), MYR Group (MYRG) and Argan (AGX).
The engineering and construction industry has suffered from several headwinds, including rising raw material costs, labor shortages and increasing supply chain problems, exacerbated by the war between Russia and Ukraine. This has led to major sales in recent months. However, this sector is expected to grow significantly this year, driven by an increase in spending on construction projects.
The engineering and construction industry is preparing for a major shift to connected building options by investing more in digital. In addition, the Investment in Infrastructure and Jobs Act should stimulate the growth of engineering and construction companies in the long term.
Against the background, it could be profitable to see the dip in fundamentally sound engineering and construction stocks like EMCOR Group, Inc. to buy (EME), MYR Group Inc. †MYRG), and Argan, Inc. †AGX†
EMCOR Group, Inc. †EME†
EME provides electrical and mechanical construction, industrial and energy infrastructure and construction services in the US and UK. The company provides design, installation, operation, maintenance services, building electrical and lighting systems, fire protection and extinguishing systems, plumbing and high purity piping systems, control and filtration systems, cranes and rigging, millwright services and construction services.
Last month, EME announced that its Board of Directors had approved a new share buyback program to repurchase up to an additional $200 million of its outstanding common stock. The company had nearly $88.70 million remaining as of April 22 under previous share buyback authorizations. This new share buyback program could enhance the company’s shareholder value.
EME’s board of directors announced a regular quarterly cash dividend of $0.13 per share in the same month. The dividend was paid to shareholders on April 29. The dividend payment regularly reflects the company’s strong capital base and consistent cash generation.
In the first quarter of fiscal 2022 ending March 31, 2022, EME revenue grew 12.5% year-over-year to $2.59 billion, while total business segment revenue in the United States grew 13% year-over-year. rose to $2.46 billion. Gross profit improved 3.4% from a year ago value to $352.56 million. In addition, the company’s net periodic retirement income grew 28.7% year-over-year to $1.17 million.
Analysts expect EME’s EPS to grow 7.6% year-over-year to $7.60 for fiscal year 2022, ending December 2022. It has surpassed consensus EPS estimates in three of the lagging four quarters. The consensus revenue estimate of $10.62 billion for the current year represents a 7.2% increase from the prior year. In addition, the company has surpassed consensus revenue estimates in each of the next four quarters.
The stock is down 20.4% so far in the past year and 15.2%. It closed yesterday’s trading session at $101.37.
EMEs POWR ratings reflect these promising prospects. It has an overall rating of B, which is equivalent to Buy in our own rating system. The POWR Ratings rate stocks on 118 different factors, each with its own weighting.
EME has a B for Value, Stability and Quality. Within the B rating Industrial -Services industry, it ranks ninth out of 91 stocks.
To see additional POWR (Momentum, Growth and Sentiment) ratings for EME, click here†
MYR Group Inc. †MYRG†
MYRG provides electrical construction services in the US and Canada. The company operates through two segments: transmission and distribution; and commercial and industrial. The Transmission and Distribution segment offers a wide range of services in the field of electrical transmission and distribution networks and substation facilities. The commercial and industrial segment offers a range of services including design, installation and repair of industrial wiring and installation of traffic networks, roadway, bridge and tunnel lighting.
On May 5, MYRG announced a new share repurchase program authorizing the company to repurchase up to $75 million of its outstanding common stock. “We are committed to creating value for all MYR Group shareholders and to allocating capital to investments that deliver strong returns. Today’s announcement reflects the Board’s confidence in the company’s long-term strategy and our belief that our stock represents an attractive long-term investment opportunity,” said Rick Swartz, President and CEO of MYRG.
In January, MYRG’s Canadian subsidiary, MYR Group Construction Canada, Ltd. all issued and outstanding shares of the capital of Powerline Plus Ltd. and its subsidiary. The Powerline Plus companies bring a quality workforce and strong management team that provide excellent customer service. The addition of Powerline Plus Companies to MYRG will strengthen its service offering in the transmission and distribution segment and expand the company’s market position.
MYRG’s contract revenue increased 7.4% year-over-year to $636.62 million in the fiscal 2022 first quarter ended March 31, 2022. Gross profit improved 4.6% year-over-year to $80.49 million. To be EBITDA was $39.56 million for the first quarter. The company’s net income and earnings per share came in at $20.69 million and $1.21, respectively, indicating a 3.8% and 3.4% year-over-year increase. In addition, net cash from financing activities was $37.97 million.
The $719.07 million consensus revenue estimate for the fiscal 2022 third quarter ended September 2022 represents a growth of 17.8% from the same value in 2021. Unsurprisingly, MYRG has outperformed consensus revenue estimates in three of the lagging four quarters. The consensus EPS estimate of $1.44 points to a 20.3% year-over-year increase for the fourth quarter ending December 2022. It has also surpassed consensus EPS estimates in each of the next four quarters.
Shares of MYRG have lost 23.9% in the past six months and 26.3% in the past six months. It closed yesterday’s trading session at USD 84.10.
MYRG’s strong fundamentals are reflected in its POWR ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
Within the B-rated industry, it ranks 32 out of 91 stocks. To see additional POWR (momentum, quality, value, stability, sentiment and growth) ratings for MYRG, click here†
Argan, Inc. †AGX†
AGX focuses on the engineering, procurement and construction of natural gas-fired power plants and renewable energy facilities. In addition, through its Gemma Power Systems and Atlantic Projects Company business, it provides commissioning, operations management, maintenance, project development, engineering and advisory services to the power generation and renewable energy markets. The company operates through Power Industry Services; Industrial manufacturing and field service; and telecommunications infrastructure services.
Last month, AGX announced that its board of directors has approved an increase in the company’s existing share repurchase program from $50 million to $75 million. The company pursues an organized capital allocation strategy that strikes a balance between returning capital to shareholders and investing in the company to accelerate growth. With this development, AGX is expected to create more shareholder value.
In the fourth quarter of fiscal 2022 ending January 31, 2022, AGX’s revenue grew 7.1% year-over-year to $125.57 million. The company’s gross profit was $22.23 million for the fourth quarter. Net other income grew 577.9% year-over-year to $983,000. In addition, cash and cash equivalents and total current assets at January 31 were $350.47 million and $507.28 million, respectively.
Analysts expect AGX revenue for fiscal year 2023, ending January 2023, to be $565.15 billion, representing an 11% year-over-year increase. Street expects the company’s earnings per share for fiscal 2024 to be $3.48, up 32.6% from last year. The company has an impressive earnings history as it has surpassed consensus EPS estimates in three of its lagging four quarters.
The stock has plunged 20% in the past six months and 24.4% in the past year. It closed yesterday’s trading session at USD 35.86.
AGX’s POWR Ratings reflect this strong outlook. It has an overall rating of B, which is equivalent to Buy in our own rating system.
AGX has an A for Quality and a B for Feel. Within the B rating Industrial – Building materials industry, it ranks 13th out of 48 stocks.
To see additional POWR (growth, momentum, value and stability) ratings for AGX, click here†
EME shares traded at $102.62 a share Friday morning, up $1.25 (+1.23%). Year-to-date, the EME is down -19.27%, compared to a -15.18% rise in the benchmark S&P 500 index over the same period.
About the author: Mangeet Kaur Bouns
Because of her great interest in the stock market, Mangeet became an investment researcher and financial journalist. Using its fundamental approach to analyzing stocks, Mangeet seeks to help retail investors understand the underlying factors before making investment decisions.
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