If the forecasters are on target (and they usually are), then construction and engineering names like Jacobs Engineering Group Inc. (NYSE:JEC) and Chicago Bridge & Iron Company N.V. (NYSE:CBI) should have a very solid 2015. Construction in the United States, and heavy construction in particular, is projected to grow in the coming year, setting up something of a boost for tickers like CBI and JEC. Chicago Bridge & Iron Company and Chicago Bridge & Iron Company N.V. aren't the only ways to play the trend, however. In fact, the blatant obviousness of them as beneficiaries likely saps some of their upside for newcomers. Investors looking for the bigger opportunities built into the positive construction outlook may want to consider the names that also - but quietly - benefit from rising construction activity... off-the-radar names like CES Synergies Inc. (OTCBB:CESX).
CES Synergies, through its subsidiary Cross Environmental Services - is a demolition and abatement experts, knocking down buildings, cleaning up demolition debit, and even removing asbestos before a major remodel (major, as in schools and hospitals) can be done before companies like the aforementioned Jacobs Engineering Group and Chicago Bridge & Iron Company N.V. can get to work on their part of the project.
It's an aspect of the construction market that often goes unappreciated, though it shouldn't. While most new homes are built in open, undeveloped tracts of land, most major institutional-level construction takes place where existing structures and infrastructure is in place. That tear-down work must be handled with care, and also in accordance with ever-rising EPA standards.
As an example, in November the Environmental Protection Agency is considering changes to its Lead Renovation, Repair and Painting Program (LRRP) rules that cover construction work on existing public and private-sector commercial (P&C) buildings. Some of the proposed revisions include lowering the limit for the tolerable amount of lead used in manufactured or imported paints, imposing stricter scrutiny regarding the disposal of polychlorinated biphenyls, asbestos, radon and lead-based paint and instituting more stringent training and certification requirements for workers that remodel, repair or paint child-occupied buildings. The measures' would ultimately add to the cost of much of the construction work inside/outside existing P&C buildings, including restaurants, hotels, hospitals, churches and office buildings to name a few.
In other words, the cost and headache of tearing a structure down in order to build a new one or remodel an old one is going to go up. And, the process for doing so is going to become an even bigger burden.
And that's just one of hundreds of EPA rules making life difficult for heavy construction companies and the architects of those projects.
The solution: Bring in the experts that know how to remove or abate a structure not just cost-effectively, but legally. Yes, that's CES Synergies Inc. Some of its past and current customers have included NASA, the U.S. Air Force, the U.S. Army Corps of Engineers, the State of Florida, and a whole slew of private sector organizations.
CESX has been on a roll, too, fueled by a new expansion effort put into motion just earlier this year. As evidence to that end, CES Synergies Inc. - through its wholly-owned subsidiary Cross Environment Services - generated $5.14 million in revenue last quarter. That compares favorably to the year-ago Q3 figure of $4.38 million. It also compares favorably to Q2's top line of $4.681 million, and to Q1's 3.81 million in revenue. Said another way, the company is growing.
More data was unveiled this week to suggest CES Synergies was going to be even busier in 2015. According to Wednesday's 2015 Construction Outlook from Dodge Data, commercial building should grow 15% next year, up from this year's 14% growth. Institutional building should grow 9% in 2015, led by new school construction. Industrial construction should even perk up next year after a very tough 2014. Industrial construction (think bridges and highways) is projected to grow 5% next year. These are all things that directly bode well for JEC and CBI, but indirectly bode just as well for CESX.
For more on CESX, here's the SmallCap Network's first look.
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