Amid several economic and geopolitical challenges, the industrial sector has addressed its vulnerabilities by bolstering domestic manufacturing, leading to improved industry prospects. Hence, robust industrial stocks EMCOR Group, Inc. (EME) and Balfour Beatty plc (BAFYY) could make great additions to your portfolio for the long term. Let’s discuss this in detail.
Decades of underinvestment in plants, people, and equipment left the industrial industry vulnerable. Trade and geopolitical tensions between China and the West, along with pandemic-related supply issues, further exposed the sector's weaknesses, causing unprecedented disruptions for manufacturers in recent years.
However, the vulnerabilities exposed by recent events have prompted industrial companies and the federal government to bolster domestic manufacturing. Priorities have shifted to revenue support and margin protection, driving significant changes in just-in-time shipping and supply chain operations.
Moreover, government investments are also propelling the sector’s growth. President Biden signed the Bipartisan Infrastructure Law, committing over $185 billion to fund 6,900 projects aimed at restoring airports, roads, and bridges. The law also pledges $8 billion to the Infrastructure for Rebuilding America (INFRA) program in the next five years.
The industrial machinery market is projected to reach $708.30 billion by 2027, growing at a CAGR of 6.7%, as per a Business Research Company report. Moreover, investors’ keen interest in industrial stocks is evident from the First Trust Industrials/Producer Durables AlphaDEX® Fund ETF’s (FXR) 11.8% returns over the past six months.
Hence, it seems wise to invest in fundamentally robust industrial stocks EME and BAFYY to ride the wave of the industry's tailwinds.
Let’s look at the factors that could make the featured stocks worthwhile investments.
EMCOR Group, Inc. (EME)
EME provides electrical and mechanical construction, facilities management, and maintenance services for various systems, including electrical power, energy solutions, instrumentation, communication, HVAC, fire protection, plumbing, water treatment, and steel fabrication.
In terms of forward EV/Sales, EME is trading at 0.66x, 57.7% lower than the industry average of 1.57x. The stock’s forward Price/Sales of 0.64 is 49.8% lower than the industry average of 1.28x.
EME’s total revenue increased 11.5% year-over-year to $2.89 billion for the fiscal first quarter that ended March 31, 2023. Its gross profit grew 23.7% from the year-ago value to $436.06 million. Moreover, the company’s net income increased 51.9% year-over-year to $111.47 million, while EPS came in at $2.32, up 66.9% year-over-year.
The consensus revenue estimate of $12.24 billion for the fiscal year (ending December 2023) reflects a 10.5% year-over-year improvement. Likewise, the consensus EPS estimate of $9.81 for the current year indicates a 21.1% rise year-over-year. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
The stock has gained 16.6% over the past six months and 55.5% over the past year to close the last trading session at $165.96.
EME’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
EME has a B grade for Quality, Sentiment, and Growth. It is ranked #5 in the 78-stock A-rated Industrial - Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see EME’s ratings for Stability, Value, and Momentum here.
Balfour Beatty plc (BAFYY)
Headquartered in London, United Kingdom, BAFYY funds, designs, develops, builds, and maintains infrastructure. It operates through three segments, Construction Services; Support Services; and Infrastructure Investments.
On March 27, Balfour Beatty Investments announced the formation of Urban Fox, a partnership with Urban Electric Networks, a British EV charge point operating company.
They plan to invest up to £60 million ($75.13 million) in the partnership to roll out 35,000 charge points across the United Kingdom for on-street electric vehicle charging over the next decade. Such alliances should enhance BAFYY's growth and revenue stream.
In terms of forward EV/Sales, the stock is trading at 0.22x, 85.7% lower than the industry average of 1.57x. BAFYY’s forward Price/Sales of 0.28 is 78.1% lower than the industry average of 1.28x.
For the fiscal year that ended December 31, 2022, BAFYY’s group revenues increased 6.2% year-over-year to £7.63 billion ($9.59 billion), and its gross profit grew 52% from the year-ago value to £427 million ($536.91 million). Furthermore, the company’s profit for the year and EPS rose 106.5% and 119.4% year-over-year to £287 million ($360.87 million) and £0.463, respectively.
Analysts expect BAFYY’s revenue to increase 5% year-over-year to $9.66 billion for the fiscal year ending December 2023. Similarly, for the next fiscal year ending December 2024, the company’s revenue is expected to come in at $9.80 billion, up 1.4% year-over-year.
Shares of BAFYY have gained 33.5% over the past six months and 60.3% over the past year to close the last trading session at $9.44.
BAFYY’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
BAFYY has an A grade for Stability and Growth and a B for Value. Within the Industrial – Services industry, it is ranked #3 out of 78 stocks.
Click here to access additional BAFYY ratings for Sentiment, Quality, and Momentum.
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EME shares were trading at $166.45 per share on Thursday afternoon, up $0.49 (+0.30%). Year-to-date, EME has gained 12.62%, versus a 6.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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