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Capitalizing on Heavy Construction Industry Boom: 5 Stocks to Buy
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The Zacks Building Products - Heavy Construction industry is set to maintain its momentum, fueled by a significant infrastructure push spearheaded by the U.S. government. This initiative focuses on enhancing the nation's roads, bridges, and broadband connectivity. Industry players are benefiting from increased demand across various sectors, including communications, power transmission, and other infrastructure projects. Although the industry faces challenges such as project delays, a competitive labor market, and rising costs, companies like EMCOR Group Inc. (EME - Free Report) , MasTec, Inc. (MTZ - Free Report) , Granite Construction Incorporated (GVA - Free Report) , Primoris Services Corporation (PRIM - Free Report) and Great Lakes Dredge & Dock Corp. (GLDD - Free Report) are well-positioned to capitalize on opportunities in this strong market environment. While macroeconomic factors may impact some customer plans, these companies are primed for growth in this dynamic industry.
Industry Description
The Zacks Building Products - Heavy Construction industry consists of mechanical and electrical construction, industrial and energy infrastructure as well as building service providers. This industry comprises heavy civil construction companies that specialize in the building and reconstruction of transportation projects, including highways, roads, bridges, airfields, ports and light rail. The companies serve commercial, industrial, utility and institutional clients. The industry players are engaged in the engineering, construction and maintenance of communications infrastructure, oil and natural gas pipelines, as well as processing facilities for energy and utility industries. These firms are also engaged in mining and dredging services in the United States and internationally.
4 Trends Shaping the Future of the Heavy Construction Industry
U.S. Administration’s Infrastructural Endeavor: The U.S. administration’s ambitious infrastructure plan, aimed at creating modern, sustainable infrastructure and a cleaner future, is set to have significant implications for the economy and the construction industry over the next five years. This comprehensive initiative includes accelerated investments across diverse areas such as roads, bridges, green spaces, water systems, electricity grids, and universal broadband. By laying the groundwork for sustainable growth, the plan seeks to mitigate the effects of climate change and enhance public health, ensuring access to clean air and water. This expansive infrastructure agenda could be a major boost for companies involved in construction and related sectors.
Strong Prospects in Telecommunication: The ramp-up of projects related to 5G has been a silver lining for the industry players. The increased demand from telecom customers for wireline networks, wireless/wireline converged networks and wireless networks using 5G technologies has been benefiting industry players. Construction work for communications is expected to pick up on huge investments in network expansion. Also, the industry is poised to gain from a significant number of project awards across multiple segments, including communications, health care, transmission and power, along with infrastructural projects in domestic and international markets.
Solid Inorganic Moves & Renewable Business Prospects: Acquisitions have been companies’ preferred mode of solidifying product portfolios and leveraging new business opportunities. Again, due to increased renewable project activity and the expansion of services in biomass and other smaller production facilities, the power generation and industrial construction market is poised to see sizable growth. The companies are well-positioned to gain from the renewable energy drive of the pro-environmental Biden administration. The development and deployment of technology solutions across the full spectrum of decarbonization efforts, comprising all facets of infrastructure for providing carbon-free energy solutions, should benefit the companies going forward.
Macroeconomic Challenges: The biggest headwinds for the industry players are centered around macroeconomic challenges and labor availability. In addition to a tight labor market, a rise in raw material costs is a concern. Meanwhile, the businesses of the industry players are susceptible to the cyclical nature of the markets in which clients operate and are dependent on the timing and funding of new awards. Hence, volatility in credits and operating risks associated with economic down cycles are pressing concerns. Macroeconomic effects may dampen the near-term execution of some customer plans.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Building Products - Heavy Construction industry is a 10-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #15, which places it in the top 6% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since June 2024, the industry’s earnings estimates for 2024 have increased 11% to $4.45 per share from $4.01.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector & the S&P 500
The Zacks Building Products - Heavy Construction industry has performed better than the broader Zacks Construction sector and the Zacks S&P 500 Composite over the past year.
Stocks in this industry have collectively gained 51.7% versus the broader sector’s 39% rally. Meanwhile, the S&P 500 has jumped 27% in the said period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing heavy construction stocks, the industry is currently trading at 19.6X versus the S&P 500’s 21.7X and the sector’s 18.2X.
Over the past five years, the industry has traded as high as 21.9X, as low as 7.5X and at a median of 13.9X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
5 Heavy Construction Stocks to Buy
Here, we have discussed five stocks from the industry that have solid earnings growth potential. The chosen companies currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
EMCOR Group: Headquartered in Norwalk, CT, this company provides electrical and mechanical construction and facilities services in the United States. EMCOR has been benefiting from solid execution in the U.S. Construction segment, comprising the U.S. Mechanical and Electrical Construction units, as well as disciplined cost control, project execution strategies and acquisition policies. The company has been gaining from resilient demand for its services, primarily in high-tech manufacturing, network and communications, manufacturing and industrial and healthcare, as well as across the EV value chain, which sparked its growth momentum. Also, accretive buyouts have been strengthening its overall results by adding new markets, opportunities and capabilities.
EMCOR, currently sporting a Zacks Rank #1, has surged 71.8% over the past year. Also, 2024 earnings estimates have increased to $18.00 per share from $16.30 over the past 30 days. Earnings for 2024 are expected to grow 34.9%. EME surpassed earnings estimates in all the trailing four quarters, with the average surprise being 36.5%. It carries an impressive VGM Score of B. This helps to identify stocks with the most attractive value, growth and momentum.
Price and Consensus: EME
Granite Construction: Based in Watsonville, CA, this company is an infrastructure contractor and a construction materials producer in the United States. Granite has recently restructured its operations to enhance its Construction and Materials segments, aiming to drive significant top-line and bottom-line growth. Construction segment leadership will support regional growth strategies and project execution, leveraging company-wide resources to better serve national clients. Meanwhile, the company has heavily invested in the Materials segment through acquisitions and strategic investments, positioning the segment for further growth through organic investments and M&A. In August 2024, Granite acquired Dickerson & Bowen, Inc., a key player in aggregates, asphalt, and highway construction in central and southern Mississippi. This acquisition is strategically significant as it complements Granite’s 2023 purchase of Lehman-Roberts Company / Memphis Stone & Gravel (LRC / MSG), further expanding its footprint in the Southeast, particularly in the Memphis metropolitan area and Mississippi markets. GVA's focus on best-value projects, representing $2.3 billion or 42% of total CAP at the end of second-quarter 2024, highlights its strategic approach to project management and risk assessment.
GVA, currently carrying a Zacks Rank #2, has gained 80.3% over the past year. Also, 2024 earnings estimates have increased to $5.24 per share from $4.76 over the past 30 days. Earnings for 2024 are expected to grow 66.9%. GVA’s earnings surpassed the consensus estimate in three of the trailing four quarters and missed on another occasion, with the average surprise being 26.4%. It carries an impressive VGM Score of B.
Price and Consensus: GVA
Great Lakes Dredge & Dock: This Houston, TX-based company provides dredging services in the United States and internationally. The company is the largest provider of dredging services in the United States. Strong domestic dredging operations, high equipment utilization and solid project execution are expected to drive growth of the company. With a record $8.7 billion budget approved in the first quarter for the 2024 U.S. Army Corps of Engineers, the bid market is anticipated to be robust and remain strong, especially in its key capital and coastal protection target markets. Great Lakes remained committed to its strategic expansion into the U.S. offshore wind market, recognizing the pivotal role offshore wind will play in America's decarbonization efforts and clean energy objectives. With a focus on long-term diversification and growth opportunities, GLDD sees immense potential in offshore wind power generation. Bolstered by its extensive backlog, enhanced fleet and strategic initiatives, GLDD is optimally positioned to thrive in the flourishing dredging bid market.
Great Lakes, currently holding a Zacks Rank #2, has gained 2.9% over the past year. Earnings estimates for 2024 have increased to 80 cents per share from 72 cents over the past 30 days. Earnings for 2024 are expected to grow 471.4%. GLDD surpassed earnings estimates in three of the trailing four quarters and met on one occasion, with the average surprise being 215.3%. It carries an impressive VGM Score of A.
Price and Consensus: GLDD
MasTec: Based in Coral Gables, FL, this is a leading infrastructure construction company operating mainly throughout North America. MasTec has been benefiting from solid performance across the Clean Energy & Infrastructure business, diversified business, strong backlog and recent acquisitions. It is one of the largest clean energy contractors in the country. Its expertise in constructing wind farms, solar farms, biomass facilities, high-voltage transmission lines, substations, battery storage and hydrogen-enabled solutions positions the company to grow further in this pro-clean energy U.S. administration. MasTec ended June 2024 with a robust $13.3 billion backlog, providing strong visibility into 2024 despite a slight year-over-year decline.
MasTec, currently carrying a Zacks Rank #2, has gained 13.3% over the past year. Earnings estimates for 2024 have increased to $3.02 per share from $2.95 over the past 30 days. Earnings for 2024 are expected to grow 53.3%. MTZ surpassed earnings estimates in three of the trailing four quarters but missed on one occasion, with the average surprise being 19.4%. Again, it carries an impressive VGM Score of A.
Price and Consensus: MTZ
Primoris Services: Based in Dallas, TX, this is a specialty contractor company operating in the United States and Canada. A robust backlog level of more than $5.24 billion (as of the second quarter of 2024) depicts solid momentum going forward. The company remains strategically focused on expanding solar and natural gas power generation while supporting infrastructure development in North America. It positions itself for growth by helping build and maintain power delivery, gas, and communications infrastructure, aiming to meet the rising demand driven by emerging technologies and economic growth.
PRIM, a Zacks Rank #2 stock, has rallied 59.8% over the past year. Also, 2024 earnings estimates have increased to $2.82 from $2.67 over the past 30 days. This company surpassed earnings estimates in all the trailing four quarters, with the average surprise being 152.4%. Again, it carries an impressive VGM Score of A.
Price and Consensus: PRIM
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Capitalizing on Heavy Construction Industry Boom: 5 Stocks to Buy
The Zacks Building Products - Heavy Construction industry is set to maintain its momentum, fueled by a significant infrastructure push spearheaded by the U.S. government. This initiative focuses on enhancing the nation's roads, bridges, and broadband connectivity. Industry players are benefiting from increased demand across various sectors, including communications, power transmission, and other infrastructure projects. Although the industry faces challenges such as project delays, a competitive labor market, and rising costs, companies like EMCOR Group Inc. (EME - Free Report) , MasTec, Inc. (MTZ - Free Report) , Granite Construction Incorporated (GVA - Free Report) , Primoris Services Corporation (PRIM - Free Report) and Great Lakes Dredge & Dock Corp. (GLDD - Free Report) are well-positioned to capitalize on opportunities in this strong market environment. While macroeconomic factors may impact some customer plans, these companies are primed for growth in this dynamic industry.
Industry Description
The Zacks Building Products - Heavy Construction industry consists of mechanical and electrical construction, industrial and energy infrastructure as well as building service providers. This industry comprises heavy civil construction companies that specialize in the building and reconstruction of transportation projects, including highways, roads, bridges, airfields, ports and light rail. The companies serve commercial, industrial, utility and institutional clients. The industry players are engaged in the engineering, construction and maintenance of communications infrastructure, oil and natural gas pipelines, as well as processing facilities for energy and utility industries. These firms are also engaged in mining and dredging services in the United States and internationally.
4 Trends Shaping the Future of the Heavy Construction Industry
U.S. Administration’s Infrastructural Endeavor: The U.S. administration’s ambitious infrastructure plan, aimed at creating modern, sustainable infrastructure and a cleaner future, is set to have significant implications for the economy and the construction industry over the next five years. This comprehensive initiative includes accelerated investments across diverse areas such as roads, bridges, green spaces, water systems, electricity grids, and universal broadband. By laying the groundwork for sustainable growth, the plan seeks to mitigate the effects of climate change and enhance public health, ensuring access to clean air and water. This expansive infrastructure agenda could be a major boost for companies involved in construction and related sectors.
Strong Prospects in Telecommunication: The ramp-up of projects related to 5G has been a silver lining for the industry players. The increased demand from telecom customers for wireline networks, wireless/wireline converged networks and wireless networks using 5G technologies has been benefiting industry players. Construction work for communications is expected to pick up on huge investments in network expansion. Also, the industry is poised to gain from a significant number of project awards across multiple segments, including communications, health care, transmission and power, along with infrastructural projects in domestic and international markets.
Solid Inorganic Moves & Renewable Business Prospects: Acquisitions have been companies’ preferred mode of solidifying product portfolios and leveraging new business opportunities. Again, due to increased renewable project activity and the expansion of services in biomass and other smaller production facilities, the power generation and industrial construction market is poised to see sizable growth. The companies are well-positioned to gain from the renewable energy drive of the pro-environmental Biden administration. The development and deployment of technology solutions across the full spectrum of decarbonization efforts, comprising all facets of infrastructure for providing carbon-free energy solutions, should benefit the companies going forward.
Macroeconomic Challenges: The biggest headwinds for the industry players are centered around macroeconomic challenges and labor availability. In addition to a tight labor market, a rise in raw material costs is a concern. Meanwhile, the businesses of the industry players are susceptible to the cyclical nature of the markets in which clients operate and are dependent on the timing and funding of new awards. Hence, volatility in credits and operating risks associated with economic down cycles are pressing concerns. Macroeconomic effects may dampen the near-term execution of some customer plans.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Building Products - Heavy Construction industry is a 10-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #15, which places it in the top 6% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since June 2024, the industry’s earnings estimates for 2024 have increased 11% to $4.45 per share from $4.01.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector & the S&P 500
The Zacks Building Products - Heavy Construction industry has performed better than the broader Zacks Construction sector and the Zacks S&P 500 Composite over the past year.
Stocks in this industry have collectively gained 51.7% versus the broader sector’s 39% rally. Meanwhile, the S&P 500 has jumped 27% in the said period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing heavy construction stocks, the industry is currently trading at 19.6X versus the S&P 500’s 21.7X and the sector’s 18.2X.
Over the past five years, the industry has traded as high as 21.9X, as low as 7.5X and at a median of 13.9X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
5 Heavy Construction Stocks to Buy
Here, we have discussed five stocks from the industry that have solid earnings growth potential. The chosen companies currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
EMCOR Group: Headquartered in Norwalk, CT, this company provides electrical and mechanical construction and facilities services in the United States. EMCOR has been benefiting from solid execution in the U.S. Construction segment, comprising the U.S. Mechanical and Electrical Construction units, as well as disciplined cost control, project execution strategies and acquisition policies. The company has been gaining from resilient demand for its services, primarily in high-tech manufacturing, network and communications, manufacturing and industrial and healthcare, as well as across the EV value chain, which sparked its growth momentum. Also, accretive buyouts have been strengthening its overall results by adding new markets, opportunities and capabilities.
EMCOR, currently sporting a Zacks Rank #1, has surged 71.8% over the past year. Also, 2024 earnings estimates have increased to $18.00 per share from $16.30 over the past 30 days. Earnings for 2024 are expected to grow 34.9%. EME surpassed earnings estimates in all the trailing four quarters, with the average surprise being 36.5%. It carries an impressive VGM Score of B. This helps to identify stocks with the most attractive value, growth and momentum.
Price and Consensus: EME
Granite Construction: Based in Watsonville, CA, this company is an infrastructure contractor and a construction materials producer in the United States. Granite has recently restructured its operations to enhance its Construction and Materials segments, aiming to drive significant top-line and bottom-line growth. Construction segment leadership will support regional growth strategies and project execution, leveraging company-wide resources to better serve national clients. Meanwhile, the company has heavily invested in the Materials segment through acquisitions and strategic investments, positioning the segment for further growth through organic investments and M&A. In August 2024, Granite acquired Dickerson & Bowen, Inc., a key player in aggregates, asphalt, and highway construction in central and southern Mississippi. This acquisition is strategically significant as it complements Granite’s 2023 purchase of Lehman-Roberts Company / Memphis Stone & Gravel (LRC / MSG), further expanding its footprint in the Southeast, particularly in the Memphis metropolitan area and Mississippi markets. GVA's focus on best-value projects, representing $2.3 billion or 42% of total CAP at the end of second-quarter 2024, highlights its strategic approach to project management and risk assessment.
GVA, currently carrying a Zacks Rank #2, has gained 80.3% over the past year. Also, 2024 earnings estimates have increased to $5.24 per share from $4.76 over the past 30 days. Earnings for 2024 are expected to grow 66.9%. GVA’s earnings surpassed the consensus estimate in three of the trailing four quarters and missed on another occasion, with the average surprise being 26.4%. It carries an impressive VGM Score of B.
Price and Consensus: GVA
Great Lakes Dredge & Dock: This Houston, TX-based company provides dredging services in the United States and internationally. The company is the largest provider of dredging services in the United States. Strong domestic dredging operations, high equipment utilization and solid project execution are expected to drive growth of the company. With a record $8.7 billion budget approved in the first quarter for the 2024 U.S. Army Corps of Engineers, the bid market is anticipated to be robust and remain strong, especially in its key capital and coastal protection target markets. Great Lakes remained committed to its strategic expansion into the U.S. offshore wind market, recognizing the pivotal role offshore wind will play in America's decarbonization efforts and clean energy objectives. With a focus on long-term diversification and growth opportunities, GLDD sees immense potential in offshore wind power generation. Bolstered by its extensive backlog, enhanced fleet and strategic initiatives, GLDD is optimally positioned to thrive in the flourishing dredging bid market.
Great Lakes, currently holding a Zacks Rank #2, has gained 2.9% over the past year. Earnings estimates for 2024 have increased to 80 cents per share from 72 cents over the past 30 days. Earnings for 2024 are expected to grow 471.4%. GLDD surpassed earnings estimates in three of the trailing four quarters and met on one occasion, with the average surprise being 215.3%. It carries an impressive VGM Score of A.
Price and Consensus: GLDD
MasTec: Based in Coral Gables, FL, this is a leading infrastructure construction company operating mainly throughout North America. MasTec has been benefiting from solid performance across the Clean Energy & Infrastructure business, diversified business, strong backlog and recent acquisitions. It is one of the largest clean energy contractors in the country. Its expertise in constructing wind farms, solar farms, biomass facilities, high-voltage transmission lines, substations, battery storage and hydrogen-enabled solutions positions the company to grow further in this pro-clean energy U.S. administration. MasTec ended June 2024 with a robust $13.3 billion backlog, providing strong visibility into 2024 despite a slight year-over-year decline.
MasTec, currently carrying a Zacks Rank #2, has gained 13.3% over the past year. Earnings estimates for 2024 have increased to $3.02 per share from $2.95 over the past 30 days. Earnings for 2024 are expected to grow 53.3%. MTZ surpassed earnings estimates in three of the trailing four quarters but missed on one occasion, with the average surprise being 19.4%. Again, it carries an impressive VGM Score of A.
Price and Consensus: MTZ
Primoris Services: Based in Dallas, TX, this is a specialty contractor company operating in the United States and Canada. A robust backlog level of more than $5.24 billion (as of the second quarter of 2024) depicts solid momentum going forward. The company remains strategically focused on expanding solar and natural gas power generation while supporting infrastructure development in North America. It positions itself for growth by helping build and maintain power delivery, gas, and communications infrastructure, aiming to meet the rising demand driven by emerging technologies and economic growth.
PRIM, a Zacks Rank #2 stock, has rallied 59.8% over the past year. Also, 2024 earnings estimates have increased to $2.82 from $2.67 over the past 30 days. This company surpassed earnings estimates in all the trailing four quarters, with the average surprise being 152.4%. Again, it carries an impressive VGM Score of A.
Price and Consensus: PRIM