With huge chunks of the government stimulus package aimed squarely at pumping up the construction market and saving energy in federal facilities, EMCOR may be sitting pretty.
The nation's financial press is loaded with best bets and other prognostications about the stocks that will rebound the fastest when the economy turns around. One popular pick resides in our neck of the woods.
EMCOR Group, Norwalk, Conn., isn't any secret in the electrical market. The company has been a big-time player in the maintenance, construction and retrofit of facilities for years, with $6.8 billion in 2008 sales (a solid 14.5 percent increase from 2007), 170 U.S. locations, 28,000 employees around the world, and a top ranking in Electrical Construction & Maintenance magazine's annual listing, “The Top 50 Electrical Contractors.” The company built itself into the nation's largest provider of electrical, mechanical and other facility maintenance services through dozens of acquisitions since its inception in 1966 as Jamaica Water Supply Co. (JWP), which provided water to Nassau County, Long Island and Queens, N.Y. Over the next 43 years, JWP survived a Chapter 11 bankruptcy filing and emerged stronger than ever under the EMCOR name as Chief Executive Officer Frank MacInnis focused on electrical and mechanical construction services and related business segments, according to www.fundinguniverse.com.
Today, Wall Street analysts have pegged EMCOR as a company to watch because of its strong balance sheet and fortuitous mix of business for the infrastructure market, which may soon be the beneficiary of billions of dollars from President Obama's stimulus package. Data provider www.morningstar.com said EMCOR “stands to benefit from the government's plans to spend $6 billion to improve energy efficiency and energy conservation of federal buildings.” That article also said EMCOR is currently the second-largest facilities service provider to the federal government in Washington, D.C. The company's accounts in the Washington, D.C., area include the Secret Service, Federal Deposit Insurance Corp., Bethesda Naval Hospital and many other facilities operated by the U.S. Navy, the Spanish embassy, Ronald Reagan Building and International Trade Center, and the U.S. Coast Guard Training Center in Yorktown, Va.
As you can see in the sidebar on this page, EMCOR is a third-party provider of construction, maintenance and retrofit services for an interesting array of markets, including lodging, government, renewables, educational facilities, factories and offices. Through its 2007 acquisition of Ohmstede Ltd., Beaumont, Texas, the company also expanded into maintenance services for refineries, petrochemical companies and related industrial business on the U.S. Gulf Coast.
The company's U.S. electrical subsidiaries, including Dynaelectric, Contra Costa Electric, Inc., New England Mechanical (NEMSI), Forest Electric Corp., and Welsbach Electric Corp., account for 25 percent of the company's total revenues ($1.7 billion). The rest of the business is split between the company's mechanical construction and facilities services (36 percent); U.S. facilities services (22 percent); Canadian construction and facilities services (6 percent); and construction and facilities services in the United Kingdom (10 percent).
EMCOR expects 2009 “base line” revenues of between $6 billion and $6.3 billion, a decline from its record $6.8 billion in 2008 annual revenues. Its backlog of business — a key measure of economic health in the construction market — is quite robust despite the dismal economic conditions. The company has a healthy $4 billion in backlog, which its annual report defines as “unrecognized revenues to be realized from uncompleted construction projects, plus unrecognized revenues expected to be realized over the remaining term of a facilities services contract up to 12 months.”
CEO MacInnis is confident EMCOR has the right mix of business to thrive when the economy turns around. When commenting recently on the company's profitable fourth quarter of 2008 and record year of sales, he said, “While we are experiencing varying degrees of pressure on demand in most of our markets, we believe EMCOR is better positioned to weather the current cycle than at any other time in its history. Our market diversification and disciplined management approach give us the flexibility to control our cost base and target sectors that are more likely to outperform, including those that may benefit from the economic stimulus package, as the current cycle evolves and ultimately improves.
“Continued uncertainty in the credit markets may affect major capital projects. But much of our business, including a substantial portion of our Facilities Services business, is derived from maintenance of existing facilities, the budgets for which are less likely to be the first cut in the current environment.”
EMCOR trades on the New York Stock Exchange under the EME ticker symbol. At press-time its stock was trading for approximately $14 per share.
Jobs of Note
Hard Rock Hotel & Casino
EMCOR's Dynalectric Nevada subsidiary is working on a huge project at the Hard Rock Hotel & Casino in Las Vegas. Dynalectric Nevada will be responsible for the project's electrical systems installation, including all lighting, power, tele/data and life-safety systems. The first phase consists of a new 560,000-square-foot parking garage; the second phase involves a remodeling and expansion of the casino; and the third and final phase entails work at the 447,000-square-foot South Tower addition.
Polysilicon manufacturing facility for solar panels
Two EMCOR subsidiaries, Dynalectric Co. of Oregon and Contra Costa Electric in California, began working last year on building the electrical infrastructure for Renewable Energy Corp.'s (REC) solar-grade polysilicon manufacturing facility in Moses Lake, Wash. The work will consist of 136 miles of power wire, 100 miles of instrument wire, five miles of cable tray, four miles of instrument air and process piping, 5,000 instruments and 1,500 lights, along with the panels, transformers and other equipment needed to carry the power load from the site's new substation.
U.S. Coast Guard training center
Last year the EMCOR Government Services (EGS) unit was awarded a contract by the U.S. Department of Homeland Security to provide facilities maintenance services to the U.S. Coast Guard's Training Center (TRACEN) in Yorktown, Va. The contract, EGS's first with the U.S. Department of Homeland Security, began in October 2008. Forty EMCOR employees are providing facilities maintenance, custodial, grounds and other services for the training base.