Every Tuesday, I write about one of the Barchart Top 100 Stocks to Buy.
These are the 100 U.S.-listed stocks with the highest weighted alpha on any given day. The weighted alpha is the return over the past 52 weeks but weighted toward more recent performance.
For example, GigaCloud Technology (GCT) has a weighted alpha of 552.50%, 164 percentage points higher than its 52-week return. This is a sign that the B2B marketplace is attracting above-average investor interest despite already gaining nearly 400% over the past year.
IES Holdings (IESC) is a Houston-based provider of electrical contracting and maintenance services. It has a current market cap of $2.5 billion.
I’d be lying if I said I knew much about the company. However, given its weighted alpha ranking yesterday was 36th, up seven spots from the day before, it’s a stock worth following if you’re interested in momentum investing.
Here are three reasons it ought to be on your watchlist.
It Just Made a Nice Acquisition
Yesterday, the company announced an acquisition that sees IES acquire Greiner Industries, a Pennsylvania-based structural steel fabrication and services company with $58 million in annual revenue.
“The acquisition of Greiner strategically expands our geographic footprint into the attractive Mid-Atlantic market, while adding several products and services,” stated IES CEO Jeff Gendell.
“... Greiner provides an opportunity to further expand the capacity and reach of our existing custom engineered product offerings.”
While no terms were disclosed, IES trades for approximately 1.03x sales. Assuming a similar multiple for Greiner, it paid about $60 million. IES reported Q1 2024 revenue of $634 million in early February, so it’s best described as a bolt-on acquisition.
The company’s last acquisition was 80% of Florida-based Edmonson Electric in May 2021. Edmonson’s management maintained 20% of the provider of residential electric, low voltage, and heating, ventilation, and air conditioning (HVAC) installation services. Including its purchase of Edmonson, the company spent $92 million in fiscal 2021 (September year-end) on four acquisitions.
With $2.4 billion in 2023, it’s readily apparent that any growth is done organically.
Its Backlog Is Still Growing
IES finished the first quarter with a backlog of $1.45 billion, down slightly from $1.56 billion at the end of September. However, it’s up considerably (9.4%) from $1.33 billion in December 2022.
As I mentioned earlier, revenue in Q1 2024 increased 10% to $634.4 million, with a 43% increase in operating income to $58.0 million. Its adjusted earnings per share was $1.87, 128% higher than a year earlier.
Despite weakness in its Residential segment—revenue decreased 1% to $315.9 million (50% overall)—its Communications, Infrastructure Solution, and Commercial and Industrial segments all delivered revenue increases in the quarter.
“We remain optimistic as we look to the balance of fiscal 2024, although we continue to be cautious about demand in both the single-family and multifamily housing markets served by our Residential segment due to elevated interest rates and a general decrease in housing affordability,” Gendell stated.
The company should continue to benefit from the shortage of residential housing in the U.S., ongoing expansion of data centers for AI, and new warehouses for e-commerce. They all need electrical contracting services.
In 2023, its free cash flow was $154 million. With no debt and judicious cash used to make acquisitions, most of its free cash will go to reinvesting in its business and buying back stock.
That’s an excellent combination.
There’s No Analyst Coverage
It’s hard to believe that a business with $2.5 billion in annual revenue and a $2.5 billion market cap has no analyst coverage, but it is what it is.
That’s good news if you’re considering an investment in the Houston company because, eventually, it will get some interest from institutional investors.
Currently, the CEO owns 57% of the company, meaning the float is just 42% of its 20.2 million shares outstanding. With an average daily volume of 123,320, this might not be your cup of tea if you’re worried about liquidity.
Interestingly, despite the lack of institutional interest, it is getting some love from options investors.
Yesterday, it had two put options with Vol/OI ratios greater than 10 and an April 19 $$130 call with a Vol/OI of 2.50, which also qualifies as unusually active. The down payment on the call is a reasonable 3.5%. Given its weighted alpha, it could easily hit $130 in the next 17 days.
IESC stock is a business that is performing well and worthy of investor consideration.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
