AECOM (ACM Quick QuoteACM - Free Report) has been rallying for over a year and defying persistent industry woes. The stock gained 2.2% in a year against the Zacks Engineering – R&D Services industry’s 6.8% fall. AECOM has been banking on strength across core transportation, water and environment markets and a solid backlog. Furthermore, its focus on Environmental, Social and Governance or ESG-related services and digital initiatives are encouraging.

Currently, the overall industry has been witnessing robust demand for, thanks to a consistent focus on enhancing the infrastructure of the country’s defense, healthcare, communication, and renewable energy. The U.S. administration’s major focus on infrastructural enhancement has been creating the need for advanced construction and engineering solutions.

Although supply-chain constraints, input cost headwinds and labor constraints are pressing concerns, the companies’ shift toward digital transformation, mergers & acquisitions and operational efficiencies should lend support. Increasing investments in the decarbonization of energy efficiency and energy transition projects also appear to be growth drivers.

Let’s check out the supporting factors in detail.

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Solid Growth History & Future Prospect: In the last reported quarter, ACM’s earnings improved impressively despite a marginal fall in revenues, backed by strong NSR growth, higher margins and stock repurchases under its capital allocation policy. Backed by solid results, the company expects solid growth in adjusted EBITDA and EPS in fiscal 2022.

For fiscal 2022, its adjusted earnings are expected to increase 21% (considering the mid-point of the guidance) from fiscal 2021 levels. AECOM expects adjusted EBITDA to rise 8% year-over-year, at the midpoint of the guidance. The company anticipates generating 6% organic NSR growth, underpinned by robust pipeline and backlog momentum and strengthening market conditions across the company’s largest markets.

Earnings estimates for fiscal 2022 have moved up 0.9% in the past 60 days to $3.43 per share, indicating 21.6% year-over-year growth. The company has an impressive earnings surprise history, having surpassed the Zacks Consensus Estimate in eight of the trailing nine quarters. The trend is expected to continue in the near term, courtesy of its solid prospects.

Also, the company currently has a VGM Score of B, supported by a Value Score of B. These positive trends signify analysts’ bullish sentiments and justify ACM’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Strength Across Segments: AECOM is expected to have gained from strength across core transportation, water and environment markets in fiscal 2022. The company’s net service revenues or NSR — defined as revenues excluding subcontractor and other direct costs — have been benefiting from the same, especially in the design business.

Its backlog amounted to $40.8 billion at second-quarter fiscal 2022-end, up from prior year period. The backlog level included 19.3% contracted backlog growth. Overall, the company’s performance demonstrates that it has been outgrowing the industry organically and capturing market share.

The company also prioritizes its investments in ESG or Environmental, Social and Governance. Demand for ACM’s technical, advisory and program management capabilities is increasing against the backdrop of an improving funding environment, highlighted by the recent passing of the federal infrastructure bill in the United States and rising demand for ESG-related services. This underpins the company’s expectation of accelerating revenue growth in fiscal 2022 and continued margin, adjusted EBITDA, and adjusted EPS growth.

Strategic Moves: AECOM has been executing a plan to transform the company into a pure-play professional services firm to improve profitability and de-risk the business profile. To that end, it is in the process of exiting more than 30 countries globally to prioritize investments in markets with higher prospects and competitive advantages. After divesting the Management services and Power construction businesses, the company intends to exit at-risk construction and non-core oil and gas markets.

Management remains focused on leveraging scale and technical leadership by simplifying the operating model to drive greater collaboration across the business and push digital innovation. Further, improved profitability enables accelerated investments in organic growth and expanded digital capabilities through Digital AECOM — the company’s digital brand that includes a portfolio of products to more holistically serve clients on their digital transformations, which will be a key contributor toward achieving 17% longer-term margin target.

International Infrastructural Prospects Look Good: Prospects of AECOM look promising beyond the borders. Owing to an improvement in the global economic scenario, the company is expecting better infrastructural prospects in the international market. AECOM has been benefiting from solid infrastructural spending in the United Kingdom, Canada, Hong Kong and Australia. Overall, the international segment’s backlog grew 8.3% for second-quarter fiscal 2022, reflecting market share gains and growth visibility. Management remains confident of attaining its goal of achieving double-digit International margins by 2024.

Other Top-Ranked Stocks From the Broader Construction Sector

KBR, Inc. (KBR Quick QuoteKBR - Free Report) — currently carrying a Zacks Rank #2 — provides professional services and technologies across the asset and program life-cycle within government services and hydrocarbons industries worldwide. Its mission-critical government services, high-end and differentiated government business work, strong margin performance, proprietary technology solutions and a significant increase in backlog (particularly in Government Solution) are expected to boost earnings for 2022.

KBR’s 2022 earnings are likely to rise 3.7%. This Zacks Rank #3 company has seen a 2% upward estimate revision for 2022 earnings over the past 30 days.

Sterling Construction Company, Inc. (STRL) — a Zacks Rank #2 company — has been benefiting from broad-based growth across the E-Infrastructure, Building and Transportation solutions segments.

The consensus mark for Sterling’s 2022 earnings rose to $2.61 per share from $2.60 in the past 30 days. This suggests 7.9% year-over-year growth.

Howmet Aerospace Inc. (HWM Quick QuoteHWM - Free Report) — a Zacks Rank #2 company — is a provider of advanced engineered solutions for the aerospace and transportation industries. The company is poised to gain from solid product offerings and focus on innovation and cost-saving efforts. Its sound shareholder-friendly policies add to its appeal.

Howmet Aerospace has seen an upward estimate revision from $1.38 per share to $1.41 for the 2022 bottom line in the past 60 days. This suggests 39.6% year-over-year growth.