Amid rising raw material costs, supply chain constraints, and labor shortages, the engineering and construction industry took a hit over the past few months. However, with a steady increase in spending across the construction sector and rising federal investments, the industry is expected to rebound soon. Given this growth prospect, adding hard-hit quality engineering & construction stocks EMCOR (EME), MYR Group (MYRG), and Argan (AGX) could be a good idea.
The engineering and construction industry has been suffering from various headwinds, including surging raw material costs, labor shortages, and deepening supply chain issues aggravated by the Russia-Ukraine war. This has led to major selloffs over the past few months. However, this industry is expected to grow significantly this year, driven by a rise in spending on construction projects.
The engineering and construction industry is preparing for a major shift toward connected construction capabilities by increasing its investments in digital. Furthermore, the Infrastructure Investment and Jobs Act should drive growth for engineering and construction companies over the long run.
EMCOR Group, Inc. (EME)
EME offers electrical and mechanical construction, industrial and energy infrastructure, and building services in the U.S. and the United Kingdom. The company provides design, installation, operation, maintenance services, premises electrical and lighting systems, fire protection and suppression systems, plumbing and high-purity piping systems, controls and filtration systems, crane and rigging, millwright services, and building services.
Last month, EME announced that its Board of Directors had authorized a new share repurchase program to repurchase up to an additional $200 million of its outstanding common stock. The company had nearly $88.70 million remaining under previous share repurchase authorizations on April 22. This new share repurchase program might strengthen the company’s shareholder value.
EME’s Board of Directors declared a regular quarterly cash dividend of $0.13 per share in the same month. The dividend was paid on April 29 to stockholders. The dividend payment regularly reflects the company’s strong capital foundation and consistent cash generation.
In the fiscal 2022 first quarter ended March 31, 2022, EME’s revenues grew 12.5% year-over-year to $2.59 billion, while revenues from the total United States operations segment increased 13% year-over-year to $2.46 billion. Its gross profit improved 3.4% from the year-ago value to $352.56 million. In addition, the company’s net periodic pension income rose 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 its fiscal year 2022, ending December 2022. It has surpassed the consensus EPS estimates in three of the trailing four quarters. The $10.62 billion consensus revenue estimate for the ongoing year represents a 7.2% rise from the previous year. Furthermore, the company has surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has declined 20.4% year-to-date and 15.2% over the past year. It closed yesterday’s trading session at $101.37.
EME’s POWR Ratings reflect this promising outlook. It has an overall grade of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
EME has a grade of B for Value, Stability, and Quality. Within the B-rated Industrial -Services industry, it is ranked #9 of 91 stocks.
To see additional POWR Ratings (Momentum, Growth, and Sentiment) for EME, click here.
MYR Group Inc. (MYRG)
MYRG provides electrical construction services in the U.S. and Canada. The company operates through two segments: Transmission and Distribution; and Commercial and Industrial. The Transmission and Distribution segment provides a wide range of services on electric transmission and distribution networks and substation facilities. Its 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 that authorizes the company to repurchase up to $75 million of its outstanding shares of common stock. “We are committed to driving value for all MYR Group shareholders and directing capital to investments that generate 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, MYRG’s President, and CEO.
In January, MYRG’s Canadian subsidiary, MYR Group Construction Canada, Ltd. acquired all issued and outstanding shares of capital stock of Powerline Plus Ltd. and its affiliate. The Powerline Plus Companies brings a high-quality workforce and strong management team that provides excellent customer service. The addition of Powerline Plus Companies to MYRG will strengthen its Transmission & Distribution segment service offerings and expand the company’s market position.
MYRG’s contract revenues increased 7.4% year-over-year to $636.62 million in the fiscal 2022 first quarter ended March 31, 2022. Its gross profit improved 4.6% year-over-year to $80.49 million. Its EBITDA amounted to $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 an increase of 3.8% and 3.4% year-over-year. In addition, net cash flows provided by financing activities came at $37.97 million.
The consensus revenue estimate of $719.07 million for fiscal 2022 third-quarter ending September 2022 represents a growth of 17.8% from the same value in 2021. It’s no surprise that MYRG has surpassed the consensus revenue estimates in three of the trailing four quarters. The consensus EPS estimate of $1.44 indicates a 20.3% year-over-year rise for the fourth quarter, ending December 2022. Also, it has surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of MYRG have lost 23.9% year-to-date and 26.3% over the past six months. It closed yesterday’s trading session at $84.10.
MYRG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, which translates to Buy in our proprietary rating system.
Within the B-rated Industrial – Services industry, it is ranked #32 of 91 stocks. To see additional POWR Ratings (Momentum, Quality, Value, Stability, Sentiment, and Growth) 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, it provides commissioning, operations management, maintenance, project development, technical, and consulting services to power generation and renewable energy markets through its Gemma Power Systems and Atlantic Projects Company operations. The company operates through Power Industry Services; Industrial Fabrication and Field Services; and Telecommunications Infrastructure Services.
Last month, AGX announced that its Board of Directors approved an increase in the company’s existing share repurchase program, from $50 million to $75 million. The company is committed to an organized capital allocation strategy that balances returning capital to its shareholders and investing in the business to accelerate growth. With this development, AGX is expected to create greater shareholder value.
In the fiscal 2022 fourth quarter ended January 31, 2022, AGX’s revenues grew 7.1% year-over-year to $125.57 million. The company’s gross profit amounted to $22.23 million for the fourth quarter. Its net other income grew 577.9% year-over-year to $983,000. In addition, its cash and cash equivalents and total current assets came in at $350.47 million and $507.28 million, respectively, as of January 31.
Analysts expect AGX’s revenue for the fiscal year 2023 ending January 2023 to come in at $565.15 billion, representing an 11% rise year-over-year. Street expects the company’s EPS to come in at $3.48 for fiscal 2024, registering an increase of 32.6% from the last year. The company has an impressive earnings history as it has surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock plunged 20% over the past six months and 24.4% over the past year. It closed yesterday’s trading session at $35.86.
AGX’s POWR Ratings reflect this strong outlook. It has an overall grade of B, equating to Buy in our proprietary rating system.
AGX has a grade of A for Quality and a B for Sentiment. Within the B-rated Industrial – Building Materials industry, it is ranked #13 of 48 stocks.
To see additional POWR Ratings (Growth, Momentum, Value, and Stability) for AGX, click here.
EME shares were trading at $102.62 per share on Friday morning, up $1.25 (+1.23%). Year-to-date, EME has declined -19.27%, versus a -15.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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