Why Emcor Group Stock Popped on Thursday
Key Points
Emcor earned more than $1 per share more than analysts expected in Q3.
Non-GAAP profits aren't as strong as GAAP, but the stock still looks cheap at its current growth rate.
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Shares of Emcor Group (NYSE:EME), a construction company specializing in electrical and mechanical projects, jumped 5.2% through 12:30 p.m. ET Thursday after beating earnings projections this morning.
Heading into Emcor's Q3 report, analysts forecast $8.37 per share in pro forma profit on $5.2 billion in sales. Emcor actually earned $9.60 per share, however, and its sales were more than $5.5 billion.
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Emcor Q3 earnings
Emcor grew its earnings 29% year over year in Q3. Earnings calculated under generally accepted accounting principles (GAAP) of $9.04 were a bit less than the non-GAAP number noted above, but still up 38% year over year, helped by an improved operating profit margin of 9.8% (up 40 basis points from last year).
CEO Tony Guzzi called the results "exceptional" across all fronts, from revenue and margins to earnings and cash flow. In that last regard, Emcor has generated $989.6 million in positive free cash flow this year -- a bit less than its $1.1 billion in reported GAAP profit, but still up 42% from a year ago.
What's next for Emcor stock
Emcor was sufficiently encouraged by its Q3 performance to raise its guidance for the rest of this year as well. Management now expects to generate at least $20.6 billion in revenue through the end of 2026, and to earn roughly $35 per share.
Granted, that's a non-GAAP number, but if Q3 is any guide, GAAP profit shouldn't fall too far below it. Figure GAAP profit 6% below non-GAAP, and Emcor might earn $33 this year, giving the stock a 21.5x price-to-earnings ratio.
For a stock growing earnings at 29%, that still sounds pretty cheap to me.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends EMCOR Group. The Motley Fool has a disclosure policy.
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