Buy AECOM on pullback
Recent Price |
$104 |
Dividend |
$1.04 |
Yield |
1.0% |
P/E Ratio |
22 |
Shares (millions) |
135.6 |
Long-Term Debt as % of Capital |
0% |
52-Week Price Range |
$118.56 - $82.23 |
Shares of AECOM ($104; ACM), a global provider of infrastructure consulting services for businesses and governments, have delivered a 27% total return over the past six months. But they have retreated 6% in the last month, apparently hurt by fears that U.S. federal spending will get slashed under the Trump Administration.
We view these concerns as overblown. We also view them as providing an attractive entry point for a stock with an enticing blend of robust operating momentum, rising profit estimates, and a reasonable valuation. AECOM is a Buy.
Reasons for optimism
For fiscal 2024 ended September, AECOM grew per-share profits 22%, total revenue 12%, operating cash flow 19%, and free cash 20% to $708 million. Net service revenue, which excludes pass-through subcontractor costs, rose 7%. The backlog increased 3% to $23.86 billion, equaling about six quarters of revenue.
AECOM appears largely insulated from threats to slash federal spending. Its work with the U.S. federal government, accounting for 7% of revenue in fiscal 2024, tends to center on multiyear contracts for critical infrastructure projects. AECOM’s other customers include state and local governments (23%), foreign governments (16%), and private businesses (54%).
Key end markets — transportation (36%), facilities (28%), water (26%), environment and new energy (10%) — position AECOM to benefit from favorable secular trends. The U.S. government has estimated that the country’s water infrastructure requires $630 billion in investments in coming decades, partly due to climate change. AECOM’s global customers are expanding their rail and aviation infrastructure, while doubling down on decarbonization and other environmental efforts.
In November, AECOM hiked its quarterly dividend 18% and approved $1 billion in stock buybacks, roughly 7% of its share count. AECOM increased its dividend by an average of 20% over the past three years, consistent with management’s target of double-digit annual growth. AECOM also slashed its outstanding shares by 8% during that span.
Conclusion
For fiscal 2025, management expects per-share profits of $5.00 to $5.20, up 11% to 15%, on service revenue growth of 5% to 8%. Analyst estimates are rising, though the consensus, calling for earnings per share to increase 13% on 6% higher total revenue, still leaves room for upside. AECOM has topped the consensus profit estimate in 17 of the past 20 quarters.
The stock’s trailing P/E ratio of 24 is in line with the median for the S&P 1500 Index construction and engineering industry but offers a 33% discount to its own three-year norm of 35. At 21 times estimated 2025 earnings, the stock trades 14% below its industry median.
AECOM, 13355 Noel Rd., Dallas, TX, 75240, (972) 788-1000, www.aecom. com.
Quarter |
Per-Share Earnings* |
Sales Change |
Quarterly Price Range |
P/E Ratio
Range |
Sep '24 |
$1.27 |
vs. |
1.01 |
7% |
$104.63 |
- |
$82.23 |
25 - 19 |
Jun '24 |
1.16 |
vs. |
0.94 |
13% |
98.69 |
- |
84.56 |
24 - 21 |
Mar '24 |
1.04 |
vs. |
0.92 |
13% |
98.72 |
- |
85.47 |
25 - 22 |
Dec '23 |
1.05 |
vs. |
0.86 |
15% |
94.01 |
- |
74.40 |
25 - 20 |
Year
(Sep.) |
Sales
(Bil.) |
Per-Share Earnings* |
Per-Share
Dividend |
52-Week Price Range |
P/E Ratio
Range |
2024 |
$16.1 |
$4.52 |
$0.92 |
$104.63 |
- |
$74.40 |
23 - 16 |
2023 |
14.4 |
3.71 |
0.72 |
92.16 |
- |
68.08 |
25 - 18 |
2022 |
13.1 |
3.47 |
0.60 |
79.97 |
- |
60.74 |
23 - 18 |
2021 |
13.3 |
2.82 |
0.00 |
70.04 |
- |
41.32 |
25 - 15 |
Quadrix Scores
Overall |
Momen-
tum |
Value |
Quality |
Financial
Strength |
Earnings
Estimates |
Perform-
ance |
Reversion |
62 |
72 |
48 |
79 |
30 |
50 |
41 |
17 |
* Earnings exclude special items.
NA Not Available.
Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.