EMCOR GROUP INC (NYSE:EME) – A Quality Stock with Strong Fundamentals

EMCOR GROUP INC (NYSE:EME) stands out as a potential candidate for quality investors, meeting key criteria for financial health, profitability, and efficient capital allocation. The company, which provides electrical and mechanical construction services, has demonstrated consistent performance and strong operational metrics.

Key Strengths

• High Return on Invested Capital (ROIC): EME’s ROIC (excluding cash and goodwill) is an impressive 120.78%, indicating exceptional efficiency in generating profits from invested capital. This places the company well above industry standards.
• Low Debt Relative to Free Cash Flow: With a Debt-to-Free Cash Flow ratio of 0.20, EME could theoretically pay off all its debt in just a few months using its current cash flow. This reflects a strong balance sheet and financial flexibility.
• Strong Profit Quality: The company’s five-year average Profit Quality—measuring how effectively net income converts to free cash flow—stands at 203.38%, well above the 75% threshold used in the screen. This suggests earnings are highly reliable and not just accounting figures.
• EBIT Growth Outpacing Revenue Growth: EME’s EBIT has grown at a 23.80% annual rate over the past five years, indicating improving operational efficiency and pricing power.

Fundamental Analysis Summary

EME scores 7 out of 10 in our fundamental rating, with particularly high marks in profitability (8/10) and financial health (9/10). Key highlights include:

• Profitability: The company outperforms most peers in Return on Assets (13.01%), Return on Equity (35.62%), and Operating Margin (9.36%).
• Growth: Revenue has grown at 9.69% annually over the past five years, while EPS has surged 30.23% per year. Analysts expect continued growth, albeit at a slower pace.
• Valuation: While not cheap, EME trades at a P/E of 21.27, below the industry average, and its valuation appears reasonable given its strong fundamentals.

For investors seeking stable, high-quality businesses, EME presents a compelling case.

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Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but you should always conduct your own analysis before making investment decisions.