Stifel Says Now Could Be a Good Time to Buy Construction Stocks; Here Are 2 Names to Consider

There has been a lot of talk in the last couple of years about ‘re-shoring,’ that is, rebuilding US industrial and manufacturing capacity. Politically, there is bipartisan support for this, as the economic and national security benefits are clear.

In the aftermath of this month’s election, there is hope that President Trump’s next administration will put a priority on re-shoring US industry. A priority for re-shoring manufacturing, along with other economic capabilities, will bring with it some important ripple effects.

While these are going to be complex, at least one thing is certain: someone is going to have to build new factories, and so the construction industry, and construction stocks, are likely to come out as winners.

There is already movement in this direction. The growth of high-tech, particularly the AI boom, has its own hefty infrastructure needs to build out, including large-scale data centers and their associated power generation facilities. And after several decades of contracting manufacturing, the labor know-how to get these building projects started is at a premium.

Stifel analyst Brian Brophy has highlighted this opportunity, stating: “We are initiating coverage of electrical & mechanical (E&M) engineering & construction (E&C) companies… We see the group as a way to play: 1) secular growth in cloud and AI data centers, 2) on-shoring of manufacturing in the US, and 3) a tight trade labor market.”

Brophy thinks that now is a good time to buy construction stocks – and he is recommending 2 names in particular. We used the TipRanks database to also find out whether other Street analysts are showing confidence in these names too. Let’s check the details.

Everus Construction Group (ECG)

The first stock on our list, ECG, is the newly-public stock of Everus Construction Group, formerly a subsidiary of MDU Resources Group. The spin-off of Everus as an independent public company in its own right was approved on October 2 of this year and completed on November 1. Everus takes control of the parent company’s construction services business, making specialized expertise available to the construction industry in the US.

Specifically, Everus provides specialty services in electrical and mechanical maintenance and distribution on sites, as well as transmission and distribution services for overhead and underground electrical, gas, and communications infrastructure. The company also works with fire suppression and mechanical piping systems, and is known for its expertise in surveying safety procedures on construction sites.

While new to the public markets, Everus boasts a market cap of $2.87 billion. The company’s footprint in the industry is extensive; Everus has 70 administrative and project locations in the US, across 43 states, employing over 9,000 people in peak construction seasons. Last year, Everus worked on more than 40,000 projects, and generated $2.85 billion in total revenues.

On November 6, Everus released its first set of financial results as a public company, covering 3Q24. The firm’s top line for the quarter came to $761 million, for a reported 6.1% year-over-year gain. At the bottom line, the company showed an EPS of 82 cents, better than the 71-cent EPS recorded for 3Q23. In the nine months ending with September 30 this year, Everus saw a free cash flow of $57.8 million, up $12.3 million year-over-year.

Checking in with Stifel’s Brian Brophy, we find that the analyst is upbeat on this stock, based on the company’s solid work niche, opportunities presented by its recent entry to the public markets, and its ability to generate free cash flow, among other factors. He writes, “We believe ECG will see significant tailwinds from the growth in data center construction due to the company’s outsized exposure to ‘inside’ electrical & mechanical work. The recent spin-off likely accelerates organic investment and M&A, in our view, and augments growth in its core data center markets. Given these tailwinds and access to newfound FCF, we see upside to long-term financial targets for ECG. Backlog remains elevated, which provides visibility over the next couple of years.”

Brophy initiates his coverage of ECG with a Buy rating, and his price target, set at $71, implies a one-year upside potential of 19.5%. (To watch Brophy’s track record, click here)

The two analyst reviews filed for this stock since it started public trading are split – one Buy and one Hold – for a Moderate Buy consensus rating. The stock is selling for $59.32 and its average price target, $63, suggests a gain of 6% on the one-year horizon. (See ECG stock forecast)

EMCOR Group (EME)

The second company on our list, EMCOR, is another services name working in the US construction industry. EMCOR offers its customers knowledge and expertise in construction, building, and industrial services; the company, through its group of subsidiary firms, can develop high-efficiency HVAC upgrades, install high-end building automation systems, or deploy the latest in solar power generation arrays.

EMCOR, which has been in business for 30 years, works with customers in a wide range of fields, including business, industry, and government, and its services include a variety of specialty construction tasks, at every level from planning to installation to regular operation to maintenance and protection. The company builds out electrical, mechanical, lighting, HVAC, and power systems, as well as building safety systems for fire suppression and security.

Like Everus above, EMCOR has an extensive footprint. Its 100-plus operating companies work from more than 180 locations around the US, and generated $12.6 billion in revenues last year. EMCOR has a market cap of almost $23 billion.

In its 3Q24 report, released at the end of October, EMCOR revealed that its revenues and earnings for Q3 had come in at record levels. The quarterly revenues were $3.7 billion, up more than 15% year-over-year, while the $5.80 EPS was up an impressive 62.5% from 3Q23. In addition, the company is well-positioned to keep up these gains, as it had a quarterly work backlog (listed as ‘remaining performance obligations’) of $9.79 billion – or 134% higher than at the end of the prior-year period.

All of this, and more, caught the attention of analyst Brophy. In his write-up of EME for Stifel, the analyst says, “We believe that EMCOR is well positioned to win an outsized portion of large data center and manufacturing projects, given its scale, leading virtual design & construction (VDC) capabilities, and pre-fabrication assets. We believe large projects are often a margin mix tailwind. We also believe best practice sharing across the various subsidiaries is a key advantage and has allowed EME to expand its capabilities to additional geographic markets over time. EME also has a strong M&A and capital allocation track record.”

These comments support Brophy’s Buy rating on EME, which is in turn backed up by a $600 price target – pointing toward a 20% gain in store for the stock in the coming year.

While there are only 2 recent share reviews on record for EMCOR, both are positive – making the Moderate Buy consensus rating unanimous. The stock has a trading price of $500.85, and its average price target, now at $557.50, suggests that the stock will gain 11% by this time next year. (See EME stock forecast)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.