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AECOM Gains 19.2% In a Month: Can the Bull Run Continue?
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AECOM (ACM - Free Report) has been benefiting from solid transportation, water and environment markets, and strong construction management business. Meanwhile, its prudent efforts to de-risk the business and improve profitability are aiding growth. Shares of AECOM have gained 19.2% in the past month, outperforming the industry.
However, global political and economic uncertainty arising from coronavirus-induced shutdowns and other existing challenges is likely to mar its upcoming results. Also, dependency on government projects and spending poses a major risk to the company in the future.
The Zacks Consensus Estimate for the company’s second-quarter and fiscal 2020 revenues indicates more than 33% year-over-year fall. Also, the consensus mark for earnings for second quarter and fiscal 2020 indicates a decline of 18.8% and 5.5%, respectively. This can be attributed to the recent economic slowdown owing to the pandemic, which has caused disruptions throughout the globe.
Strong Professional Services Business to Overcome End-Markets Challenges: AECOM’s higher return, lower risk Professional Services business is building strength. Moreover, the company’s strategic and financial initiatives are encouraging. Notably, in the fiscal first quarter, the segment’s adjusted operating margin expanded an impressive 230 basis points from fiscal 2019 on net service revenues or NSR (revenues excluding subcontractor and other direct costs).
The company’s solid backlog levels (up 2% in the fiscal first quarter) indicate significant opportunities ahead. Meanwhile, AECOM’s China and the Middle East businesses are facing certain end-market challenges. Also, reduction in disaster recovery activity in the U.S. Virgin Islands and large fixed-priced projects in the power sector have been significantly affecting the business. However, the company remains confident about encouraging state tax revenues, accelerated infrastructure investment and increased demand for innovative solutions. Also, strong pipeline in the construction management business and $100 billion proposed infrastructure investment in U.K. are likely to support growth.
Solid Restructuring Plan Reduces Dependence on Global Market Conditions: AECOM has undertaken a restructuring initiative to improve profitability and de-risk its business profile. The company, which has already completed more than 50% of its country exit plan in the fiscal first quarter, intends to exit more than 30 countries overall in order to prioritize investments in markets with higher prospects and competitive advantages. The company is confident about the General and Administrative reduction program, which is expected to generate $140 million of annual cost savings every year till fiscal 2021.
AECOM serves in many international countries like Europe, the Middle East, Africa and several Asia-Pacific regions, it is prone to uncertain global political and economic conditions. Economic slowdown in China is a major threat to the company’s growth. Also, unfavorable political, economic and military conditions in the Middle East, Africa and Southwest Asia are raising concerns.
Apart from these existing headwinds, the recent pandemic is likely to weigh on the company’s near-term results. Market pundits anticipate a global slowdown, which will impact its first-half 2020 results. While these headwinds pose a threat to the which includes biggies like Jacobs Engineering Group Inc. (J - Free Report) , Quanta Services, Inc. (PWR - Free Report) and Gates Industrial Corporation plc (GTES - Free Report) , AECOM’s strategic plans will help it overcome global uncertainties.
Strong Price Performance Builds Strength Despite Bottom-Line Woes: Its solid share price movement is encouraging. The company’s shares have outperformed the industry in the year’s time. Also, earnings estimates for fiscal 2020 have moved up 6.6% over the past 30 days, which implies that analysts are encouraged by the company’s fundamentals. Investors are also optimistic about the company’s prospects.
Markedly, its superior return on equity (ROE) is indicative of growth potential. The company’s ROE of 10.2% compares favorably with the industry’s average of 9.6%, implying that it is efficient in using shareholders’ funds.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.5% per year.
These 7 were selected because of their superior potential for immediate breakout.
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AECOM Gains 19.2% In a Month: Can the Bull Run Continue?
AECOM (ACM - Free Report) has been benefiting from solid transportation, water and environment markets, and strong construction management business. Meanwhile, its prudent efforts to de-risk the business and improve profitability are aiding growth. Shares of AECOM have gained 19.2% in the past month, outperforming the industry.
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However, global political and economic uncertainty arising from coronavirus-induced shutdowns and other existing challenges is likely to mar its upcoming results. Also, dependency on government projects and spending poses a major risk to the company in the future.
The Zacks Consensus Estimate for the company’s second-quarter and fiscal 2020 revenues indicates more than 33% year-over-year fall. Also, the consensus mark for earnings for second quarter and fiscal 2020 indicates a decline of 18.8% and 5.5%, respectively. This can be attributed to the recent economic slowdown owing to the pandemic, which has caused disruptions throughout the globe.
Let’s see how this Zacks Rank #3 (Hold) company’s fundamentals are set to overcome these barriers. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Strong Professional Services Business to Overcome End-Markets Challenges: AECOM’s higher return, lower risk Professional Services business is building strength. Moreover, the company’s strategic and financial initiatives are encouraging. Notably, in the fiscal first quarter, the segment’s adjusted operating margin expanded an impressive 230 basis points from fiscal 2019 on net service revenues or NSR (revenues excluding subcontractor and other direct costs).
The company’s solid backlog levels (up 2% in the fiscal first quarter) indicate significant opportunities ahead. Meanwhile, AECOM’s China and the Middle East businesses are facing certain end-market challenges. Also, reduction in disaster recovery activity in the U.S. Virgin Islands and large fixed-priced projects in the power sector have been significantly affecting the business. However, the company remains confident about encouraging state tax revenues, accelerated infrastructure investment and increased demand for innovative solutions. Also, strong pipeline in the construction management business and $100 billion proposed infrastructure investment in U.K. are likely to support growth.
Solid Restructuring Plan Reduces Dependence on Global Market Conditions: AECOM has undertaken a restructuring initiative to improve profitability and de-risk its business profile. The company, which has already completed more than 50% of its country exit plan in the fiscal first quarter, intends to exit more than 30 countries overall in order to prioritize investments in markets with higher prospects and competitive advantages. The company is confident about the General and Administrative reduction program, which is expected to generate $140 million of annual cost savings every year till fiscal 2021.
AECOM serves in many international countries like Europe, the Middle East, Africa and several Asia-Pacific regions, it is prone to uncertain global political and economic conditions. Economic slowdown in China is a major threat to the company’s growth. Also, unfavorable political, economic and military conditions in the Middle East, Africa and Southwest Asia are raising concerns.
Apart from these existing headwinds, the recent pandemic is likely to weigh on the company’s near-term results. Market pundits anticipate a global slowdown, which will impact its first-half 2020 results. While these headwinds pose a threat to the which includes biggies like Jacobs Engineering Group Inc. (J - Free Report) , Quanta Services, Inc. (PWR - Free Report) and Gates Industrial Corporation plc (GTES - Free Report) , AECOM’s strategic plans will help it overcome global uncertainties.
Strong Price Performance Builds Strength Despite Bottom-Line Woes: Its solid share price movement is encouraging. The company’s shares have outperformed the industry in the year’s time. Also, earnings estimates for fiscal 2020 have moved up 6.6% over the past 30 days, which implies that analysts are encouraged by the company’s fundamentals. Investors are also optimistic about the company’s prospects.
Markedly, its superior return on equity (ROE) is indicative of growth potential. The company’s ROE of 10.2% compares favorably with the industry’s average of 9.6%, implying that it is efficient in using shareholders’ funds.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.5% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>