Wednesday, December 5, 2018

Bleak Near-Term Outlook for Engineering R&D Services Industry 

The Zacks Engineering – R&D Services industry primarily consists of engineering and infrastructure service providers. The companies basically provide construction, technical, engineering and professional services to a number of industries worldwide, including oil and gas, chemical and petrochemicals, transportation, mining and metals, power, agriculture, consumer applications and manufacturing. Let’s take a look at the industry’s three major themes: The industry is poised to benefit from the rising construction activities in the United States that require state-of-the-art construction and engineering services. The Trump administration’s push to boost infrastructure spending is another vital growth catalyst for the industry.  The Trump administration’s investment in defense and cyber security is conducive to the industry’s growth. The players are also gaining from rising global demand for alternative nuclear energy, as they provide engineering, procurement, construction and maintenance services to nuclear power plants. Meanwhile, increasing public investments in transportation, water infrastructure, utility plant and healthcare market are anticipated to drive growth for the industry. Chemical derivative and refining opportunities, both domestic and international, along with upstream and LNG opportunities should also drive growth.  However, trade-war driven increases in raw material costs, rising freight expenses, volatility in commodity prices and the cyclical nature of the industry’s commodity-based business lines pose significant challenges. Again, significant cost overruns (as prices of several companies’ contracts are fixed) have been hurting bottom lines of some of the companies. Increasing competition is another dampener. The industry faces intense competition in the global engineering, procurement and construction industry, which is detrimental to the companies’ contract prices and profit margins. Zacks Industry Rank Indicates Dull Prospects The Zacks Engineering – R&D Services industry is a 15-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #185, which places it at the bottom 29% 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 dismal near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. The industry’s position in the bottom 29% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since January 2018, the industry’s earnings estimate for the current year has gone down by approximately 8.9%. Despite the industry’s gloomy near-term view, we will present a few stocks that one can hold on to. Before that, it’s worth taking a look at the industry’s shareholder returns and current valuation. Industry Lags on Stock Market Performance The Zacks Engineering – R&D Services industry has lagged the broader Zacks Construction sector as well as the Zacks S&P 500 composite over the past year. Over this period, the industry has declined 32.2% versus the broader sector’s decline of 29.9% and the S&P 500’s decline of 6.5%. One-Year Price Performance Industry’s Current Valuation On the basis of forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing building products stocks, the industry is currently trading at 10.5X versus the S&P 500’s 15.1X and the sector’s 10.6X. Over the past five years, the industry has traded as high as 16.9X, as low as 9.9X and at the median of 13.4X, as the chart below shows. Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500 Bottom Line A major boost in infrastructural and construction spending should continue to favor the industry’s performance. Advanced construction and engineering services along with prudent cost management practices should provide support. However, rising transportation and raw material costs are pressing concerns. Only two stocks in the Zacks Engineering – R&D Services space currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Altair Engineering Inc. (ALTR): This Michigan-based company provides enterprise-class engineering software worldwide and carries a Zacks Rank #2. The consensus EPS estimate for the company has increased 8.6% to 32 cents for the current year, over the last 60 days. Shares of Altair have gained 23.4% year to date. The expected earnings growth rate for the current year is 23.1%. KBR, Inc. (KBR): The Houston-TX based company carries a Zacks Rank #2. The consensus EPS estimate for this global engineering, construction and services firm has increased 4.8% to $1.52 for the current year, over the last 60 days. Investors may hold on to the following Zacks Rank #3 (Hold) stocks, as they currently carry a Zacks Rank #3 (Hold) and are experiencing positive estimate revisions. Willdan Group, Inc. (WLDN): This Anaheim, CA-based professional technical and consulting services provider has an expected earnings growth rate of 67.8% for the current year. The consensus EPS estimate for the company has moved 10.6% north, over the last 60 days. Gates Industrial Corp. plc (GTES): Denver-based power transmission and fluid power systems manufacturer has an expected earnings growth rate of 44.6% for the current year. The consensus EPS estimate for the company has increased 1.7% to $1.20 for the current year, over the last 60 days. Quanta Services, Inc. (PWR): This Houston, TX-based company provides specialty contracting services to the electric power, communication, and oil and gas industries in the United States, Canada, Australia, Latin America and internationally. It has an expected earnings growth rate of 40.1% for the current year. The consensus EPS estimate for the company has remained stable, over the last 60 days. Looking for Stocks with Skyrocketing Upside? Zacks has just released a Special Report on the booming investment opportunities of legal marijuana. Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.    See the pot trades we're targeting>> Story continues


Columbia Engineering masters student has died 

Niels Chardon-Boucaud, a masters student in the School of Engineering and Applied Science, died Friday, SEAS Dean Mary Boyce announced in an email sent to SEAS graduate students yesterday afternoon. He was 21 years old. Chardon-Boucaud, who started at Columbia in the fall, was pursuing a masters degree in Industrial Engineering and Operations Research. Originally from France, Chardon-Boucaud graduated from CentraleSupélec, an institute of research and higher education in engineering and science in Paris, in 2018, where he studied electrical engineering, telecommunications, and computer science. While there, he also played soccer and was involved in organizing the elections for the Students’ Union. In her email, Boyce encouraged students to seek support through Counseling and Psychological Services, the Office of the University Chaplain, and Tiffany Simon in the Office of Graduate Student Affairs. According to the Columbia Health website, Counseling and Psychological Services can be reached 24 hours a day at 212-854-2878. For immediate psychiatric care, students can visit the emergency room at Mount Sinai St. Luke’s hospital at 113th street and Amsterdam avenue, which can be reached at 212-523-3347. A full list of Columbia’s health and well-being resources can be found here. To reach the National Suicide Prevention Lifeline, call 800-273-8255. Read Boyce’s full message below: Dear Students, It is with great sadness that I write with some difficult news for our community. Niels Chardon-Boucaud, a Columbia Engineering Master of Science student in IEOR from France, passed away today. We are in contact with his family to provide support and assistance during this time. When we lose a member of our community, we are all affected. I encourage you to rely on one another and on University resources for support. Counseling and Psychological Services can be reached at 212-854-2878 and will have extended walk-in hours today till 9 p.m. on the 5th floor of Lerner Hall. You may also seek support from Tiffany Simon in Graduate Student Affairs (212-854-6443, tms26@columbia.edu) and the Office of the University Chaplain (212-854-1493). Please take care of yourself and those around you. I know that all of you join me in sending our deepest condolences to Niels’ family and friends, and ask that you keep them in your thoughts in the days ahead. Sincerely, Mary C. Boyce Dean of Engineering Morris A. and Alma Schapiro Professor Soulaymane Kachani Senior Vice Dean for Academic Affairs Student Resources: Columbia Counseling and Psychological Services - (212) 854-2878 Columbia Health - (212) 854-7426 Office of the University Chaplain - (212) 854-1493 Nightline - (212) 854-7777 karen.xia@columbiaspectator.com | @ColumbiaSpec


NYPA brings in third engineering firm to help with defunct East Dam; West Dam still shut down 

POTSDAM — Both the East Dam and West Dam are inoperable and losing money, but a new actuator is on its way from Canada for the West Dam, and a new engineering firm will help with the East Dam. The West Dam shut down in November after its actuator, which adjusts the blades on the turbines, malfunctioned. A new piece is being built by Pro Tech in Canada and will be brought down as soon as it’s finished. Pro Tech is also looking into what caused the malfunction. The East Dam has been inoperable since August 2015. The West Dam is also inoperable and will be for more than a month. Both have caused financial burdens to the village. The repairs, combined with having the West Dam out of action, will cost at least $50,000. Also, between the interest and the principal of the money borrowed to initially build and repair the West Dam, the village will have to pay yearly increments from 2019 to 2029 that will total $3,153,302.41. A silver lining might come from the fact that the West Dam has started to make a slight profit in the last fiscal year. From June 1, 2017, to May 31, 2018, the West Dam made $45,938.81; however, from June 1,2018, to Dec. 17, the West Dam has lost $103,389.05. The village is currently working with the New York Power Authority, Hatch Associates Consulting Inc. and a third engineering firm to help with the design phase of the East Dam, which will likely be complete by the end of summer. Construction is planned to begin in September 2019. The cost of construction will come to $1.8 million. One million will come from grants provided by the Dormitory Authority of the State of New York and a Community Development Block Grant through the Community Renewal Office. The remaining $800,000 will come from an interest-free NYPA loan. NYPA is adding the third engineering firm to help ensure nothing is overlooked, according to Village Administrator Gregory O. Thompson. At a village board meeting Monday night, Mr. Thompson said that the new firm will not add to expenses or alter the timeline of repairing the East Dam. Mr. Thompson has had doubts about the current progress, however. “I have taken it upon myself to talk to the folks at National Grid who have connections with NYPA at the high end, just because I feel like this project is not moving forward in the way it should,” Mr. Thompson said. Of the money the village has received, $750,000 from the Office of Community Renewal has to be spent by December of next year. Mr. Thompson said he was worried the money may not be spent in time and the village will lose the grant, causing it to either pay the $750,000 for construction out of pocket or through another grant. The East dam, despite being 30 years older, is said to produce more revenue — approximately 20 to 30 percent, which is why members of the Village have said it’s important to work on. The “fork” ratings are based primarily on food quality and preparation, with service and atmosphere factored into the final decision. Reviews are based on one unsolicited, unannounced visit to the restaurant.

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