MEP Contractor ROIC: Why Margin × Turnover Explains the 4x Spread

Last Updated: January 31, 2026 Data Currency: Q3 2025 for FIX, EME, PWR, MTZ, MYRG; Q3 FY2026 for DY. FIX, EME, PWR, MTZ

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Why Does FIX Generate 4x the Returns of Quanta?

The surface-level answer—"FIX has data center exposure"—is incomplete. Many contractors claim data center exposure. What separates FIX?

DuPont analysis decomposes ROIC into its fundamental drivers:

ROIC ≈ Operating Margin × Asset Turnover

When we calculate this for each company:

Company	FIX	EME	MTZ	PWR
Revenue (TTM)	$6.6B	$16.8B	$13.8B	$26.4B
Operating Margin	13.32%	9.41%	7.12%	5.19%
Asset Turnover	1.81x	2.02x	1.52x	1.39x
ROIC	40.8%	30.7%	14.6%	9.7%

The Multiplicative Effect

FIX's ROIC advantage isn't additive—it's multiplicative:

• Margin advantage: FIX 13.32% vs PWR 5.19% = 2.5x higher
• Turnover advantage: FIX 1.81x vs PWR 1.39x = 1.3x higher
• Combined effect: 2.5 × 1.3 ≈ 3.3x ROIC spread

Note on ROIC math: The simplified DuPont formula (Margin × Turnover) produces an approximation. Actual ROIC calculations involve NOPAT adjustments (tax rates, operating leases) and invested capital definitions (excess cash treatment, goodwill inclusion) that vary by methodology. The directional insight—FIX wins on both levers—holds regardless of precise calculation.

The analytical point: Don't just compare ROIC numbers. Decompose them. FIX doesn't just have higher margins or better asset efficiency—it has both. That's rare and suggests structural competitive advantages in project selection, pricing power, or operational execution.

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The MTZ Warning: When Revenue Growth Hides Value Destruction

MasTec's headline numbers look strong: 22% revenue growth. But ROIC tells a different story.

The ROIC Collapse

MTZ's 8-quarter ROIC trend shows -83% deterioration—among the worst in the industrial sector. While we don't have precise Q1 2024 starting ROIC, the directional collapse is confirmed by operating metrics:

Metric	9M 2024	9M 2025	Change
Operating Cash Flow	$650M	$173M	-73%
Operating Margin TTM	~7.7%	7.12%	Compressing
DSO	60 days	69 days	+15%

This isn't normal cyclicality. Something structural broke.

The Pipeline Segment: The Smoking Gun

MTZ's SEC filing reveals the cause. The Pipeline Infrastructure segment—historically their highest-margin business—is in distress:

Translation: Labor productivity issues ("reduced efficiencies") and a shift to lower-margin projects ("project mix") are crushing profitability.

Cash Flow Validates the Problem

Pipeline segment issues aren't just an accounting phenomenon—cash flow confirms operational stress:

Metric	9M 2024	9M 2025	Change
Operating Cash Flow	$650M	$173M	-73%
DSO	60 days	69 days	+15%

Rising DSO (days sales outstanding) indicates either customer payment delays or extended terms—both are warning signs. Management describes this as "timing-related." The 530 bps margin collapse suggests it's structural.

The Investment Implication

MTZ trades at 11.4x EV/EBITDA—the cheapest in the peer group. But cheap for a reason. Before considering MTZ as a value opportunity, monitor Q4 for:

1. Pipeline segment margin stabilization (currently -530 bps)
2. Operating cash flow recovery
3. DSO reversal (currently 69 days vs 60 days prior year)

Without these signals, the low multiple may be justified—not a buying opportunity.

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The PWR Valuation Puzzle: Does Size Justify a 2x Premium?

Quanta Services (PWR) presents an analytical puzzle: worst ROIC in the peer group, highest valuation.

Metric	PWR	FIX	Spread
EV/EBITDA	26.5x	14.0x	PWR trades at 1.9x FIX
ROIC	9.7%	40.8%	FIX earns 4.2x PWR's return
Revenue	$26.4B	$6.6B	PWR has 4x FIX's scale

The Bull Case for PWR's Premium

PWR's valuation may reflect factors beyond current returns:

1. Backlog visibility: $20.97B RPO + $39.17B total backlog provides multi-year revenue visibility. FIX has $9.38B backlog—substantial but smaller scale.

2. Contract optionality: Largest contractors can bid on mega-projects smaller competitors can't handle. PWR's size creates option value for large wins.

3. Diversification: PWR operates across electric power, pipeline, industrial, and renewable segments. This reduces cyclical risk vs. concentrated plays.

The Bear Case: Size Without Returns

However, the premium appears misaligned with capital efficiency:

1. ROIC trend is flat: PWR's ROIC improved only +2.2% over 8 quarters—no inflection visible

2. Leverage is highest: 2.03x Net Debt/EBITDA vs FIX's -0.30x (net cash). PWR's balance sheet provides less flexibility.

3. Litigation exposure: PWR faces unquantified Silverado Fire liability:

4. Pipeline segment challenges: Like MTZ, PWR's pipeline operations face margin pressure (though not as severe).

The Analytical Takeaway

PWR investors are paying for scale and optionality, not returns. This can be rational if you believe:

• Large infrastructure contracts will accelerate (electrification, grid modernization)
• PWR's size is a competitive moat for mega-projects
• ROIC will improve as utilization increases

If you prioritize current capital efficiency, FIX at 14x EV/EBITDA is more attractive. The question is what you're optimizing for.

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EME's Efficiency Edge: A Different Path to High Returns

EMCOR (EME) offers a counterpoint to FIX. Both generate excellent ROIC, but through different mechanisms.

The Two Models of High Returns

Driver	FIX Model	EME Model
Operating Margin	13.32% (higher)	9.41% (lower)
Asset Turnover	1.81x (lower)	2.02x (higher)
ROIC	40.8%	30.7%
Strategy	Win on margin	Win on efficiency

FIX's model depends on maintaining pricing power. Hypothesis: This likely comes from specialized data center work where clients prioritize speed and quality over cost—though FIX's SEC filings don't explicitly address pricing dynamics.

EME's model depends on operational efficiency—generating more revenue per dollar of assets employed. EME's 2.02x turnover is 60% higher than FIX's 1.81x.

Why This Matters for Risk

These different models have different risk profiles:

FIX risk: If margin pressure emerges (competition, commoditization), ROIC could compress quickly. FIX's 13.32% margin has more room to fall than EME's 9.41%.

EME resilience: In a margin-compression scenario, EME may prove more resilient. Its returns depend less on pricing power and more on operational execution—a skill that's harder for competitors to replicate quickly.

EME's Data Center Exposure

EME's SEC filings confirm substantial data center exposure:

This appears in both electrical and mechanical segments—EME provides integrated MEP services for data center buildouts.

The Investment Implication

EME trades at 13.0x EV/EBITDA with 30.7% ROIC and a net cash balance sheet (-0.51x Net Debt/EBITDA). For investors who want:

• Data center exposure with less valuation risk than FIX
• Resilience in margin-compression scenarios
• Diversified segment exposure

EME may be the better risk-adjusted choice—accepting lower returns for a more defensible position.

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Data Center Exposure: What SEC Filings Actually Say

Claims of "data center exposure" are common. Let's separate marketing from reality using verbatim SEC disclosures.

HIGH Exposure: FIX and EME

Comfort Systems USA (FIX):

"The increase in demand has been especially strong in the technology sector, particularly for data centers." — FIX 10-Q, Q3 2025, Management Discussion

FIX's backlog supports this: $9.38B total (+65% YoY), with major technology sector bookings including a $546M Indiana project and $326M Texas bookings.

FIX also acquired J&S Mechanical, described as "specializing in data center HVAC systems"—a clear strategic bet on data center buildout.

EMCOR Group (EME):

"[Revenue increase was] predominantly driven by greater demand for data center construction projects." — EME 10-Q, Q3 2025, Segment Discussion

EME cites data center demand in both electrical and mechanical segments—a diversified exposure versus FIX's concentration.

MODERATE Exposure: DY, MTZ, PWR

These companies benefit indirectly:

• DY (Dycom): Telecom/fiber infrastructure supports data center connectivity. No explicit data center mention in filings.
• MTZ (MasTec): Communications segment grew 36% YoY, but filings don't specify data center as a driver.
• PWR (Quanta): "Utility investments, electrification trends" language—power infrastructure that data centers require, but not direct MEP work.

LOW Exposure: MYRG

MYRG focuses on transmission & distribution (T&D) and commercial/industrial electrical work. No data center mention in SEC filings. Investment thesis depends on grid modernization, not AI infrastructure.

The Analytical Limitation

None of these companies disclose exact percentage of revenue from data centers. FIX's "37% technology sector" figure (from investor presentations, not filings) is the closest to quantification. Treat data center exposure claims as qualitative—the SEC quotes above are the best available evidence.

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Quality Rankings: The Final Scorecard

Based on DuPont analysis, filing intelligence, and risk assessment:

Rank	Ticker	ROIC	Thesis	Key Risk
1	FIX	40.8%	Strong - Margin leadership, net cash, improving trend	Tech sector cyclicality, acquisition integration
2	EME	30.7%	Strong - Efficiency leadership, diversified, net cash	UK segment sale complexity, scale management
3	MYRG	13.5%	Hold - Improving trend (+9.8%), but thin 4.3% margins	Limited scale, low data center exposure
4	DY	13.3%	Caution - Improving ROIC, but 89.6% customer concentration	Extreme dependency risk, 108-day DSO
5	PWR	9.7%	Caution - Largest but worst ROIC, Silverado liability	Premium valuation (26.5x) despite poor returns
6	MTZ	14.6%	Avoid - ROIC collapsed 83%, Pipeline segment distressed	Value trap risk; monitor Q4 for recovery

Why Not Simple ROIC Ranking?

Note that MTZ (14.6% ROIC) ranks below PWR (9.7% ROIC). Current ROIC matters less than trend and risk:

• MTZ's -83% ROIC deterioration signals value destruction
• PWR's flat trend is poor but stable
• MTZ's 55% cash conversion vs PWR's 166% indicates MTZ's profits are less "real"

Invest based on direction, not just level.

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What Should Investors Do With This Analysis?

For FIX Bulls

FIX's 40.8% ROIC with improving trend and net cash balance sheet justifies its 14x EV/EBITDA. Actionable signal: Monitor technology sector backlog growth—a slowdown would be the first warning sign of margin pressure.

For EME Bulls

EME offers similar data center exposure with more defensible efficiency-driven returns. Actionable signal: Track asset turnover (currently 2.02x)—a decline would indicate operational slippage.

For MTZ Watchers

Do not buy MTZ on valuation alone. The 11.4x EV/EBITDA may be a value trap, not a value opportunity. Actionable signal: Wait for Pipeline segment margin stabilization and operating cash flow recovery before considering entry.

For PWR Skeptics

PWR's 26.5x multiple requires improvement in returns to be justified. Current ROIC (9.7%) doesn't support the premium. Actionable signal: Watch for ROIC inflection—without it, the premium may compress.

For Small-Cap Quality Seekers

FIX and EME represent the "Great Rotation" opportunity in industrials—high-quality small/mid-caps benefiting from AI infrastructure buildout at reasonable valuations. Both trade at less than half PWR's multiple with 3-4x better returns.

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Methodology and Limitations

For more ROIC analysis across sectors, see our complete ROIC analysis guide.

ROIC Calculation: Net operating profit after tax (NOPAT) divided by invested capital (total assets minus excess cash minus non-interest-bearing current liabilities). Computed from SEC XBRL filings.

DuPont Decomposition: Operating margin (NOPAT/Revenue) × Asset turnover (Revenue/Invested Capital). Adjusted ROIC may differ slightly due to tax rate variations.

Data Center Exposure: Qualitative assessment based on SEC filing language. No company discloses exact data center revenue percentage. Treat exposure ratings as relative, not absolute.

Limitations:

• FIX DSO data gap in extraction (pending verification)
• DY fiscal year ends in July; Q3 FY2026 data used
• Backlog figures are management estimates; actual conversion may vary

Analysis based on Q3 2025/Q3 FY2026 10-Q filings. Next update after Q4 2025 earnings.

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New to industrial stock analysis? See our beginner's guide: How to Analyze Industrial Contractor Stocks for the framework used in this analysis.