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AECOM (ACM) Stock Rises 41% in a Year: More Room to Run?
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AECOM (ACM - Free Report) is likely to benefit from robust contributions across its segments and solid backlog. Also, digital innovation and expansion efforts bode well.
Shares of ACM have gained 40.7% in the past year compared with the Zacks Engineering - R and D Services industry’s rise of 27.6%. Earnings estimates for 2023 have increased to $3.70 per share from $3.67 per share in the past 60 days. This depicts analysts' optimism over the company’s growth prospects.
However, persisting macroeconomic risks and the cyclical nature of its business are potential headwinds.
Image Source: Zacks Investment Research
Growth Drivers
AECOM is witnessing robust prospects in all its segments. The company’s net service revenues or NSR for the second quarter of fiscal 2023 increased 7%, marking the ninth consecutive quarter of accelerating organic growth. NSR — defined as revenues excluding subcontractor and other direct costs — have been benefiting from strength across core transportation, water and environment markets. The total backlog increased to $41.98 billion (including 12% growth in the design business) from $40.8 billion in the prior-year quarter.
The company has a good visibility of strong backlog and pipelines for the upcoming quarters. Based on clients' strengthening funding backdrop, including benefits from the $1.2 trillion infrastructure bill in the United States, AECOM expects the backlog to continue to grow. Overall, the company’s performance demonstrates that it has been outgrowing the industry organically and capturing market share.
AECOM has been benefiting from solid infrastructure spending in the U.K., Canada, Hong Kong and Australia. Owing to the improvement in the global economic scenario, the company is expecting better infrastructural prospects in the international market. The International segment’s backlog at the end of second-quarter fiscal 2023 increased 9.7% year over year, reflecting market share gains and growth visibility.
Digital AECOM, the company’s digital brand, with a portfolio of products that serve clients on their digital transformations, will be a key contributor toward achieving a 15% adjusted operating margin target in 2024. For fiscal 2023, it expects the metric to rise 40 bps year over year.
ACM recently developed and unveiled a proprietary IIJA-specific digital tool as part of the digital AECOM offering, built organically by company experts in response to urgent demand from clients to best position their projects for IIJA funding. In addition, AECOM recently entered into a partnership with Microsoft to leverage its leading cloud technology and further enhance the PlanEngage offering. PlanEngage is now being promoted by Microsoft, creating another channel from which AECOM can deliver innovation to the marketplace.
Headwinds
The demand for AECOM’s services is cyclical. Hence, it is largely vulnerable to reduction in government and private industrial spending. If economic conditions remain uncertain/weak and government spending is reduced, the company’s revenues and profitability could be adversely affected. Moreover, as the company operates across multiple geographies, factors like changes in the United States and other national governments’ trade policies, regulatory practices, tariffs and taxes, further devaluations and other conversion restrictions and logistical & communication challenges might adversely impact the company’s financials.
Zacks Rank & Key Picks
AECOM currently sports a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Zacks Construction sector are:
The Zacks Consensus Estimate for DY’s 2023 sales and EPS indicates a rise of 8.3% and 41%, respectively, from the year-ago period’s levels.
Martin Marietta Materials, Inc. (MLM - Free Report) sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 31%, on average. Shares of MLM have gained 40.5% in the past year.
The Zacks Consensus Estimate for MLM’s 2023 sales and EPS indicates a rise of 19% and 33.1%, respectively, from the year-ago period’s levels.
Vulcan Materials Company (VMC - Free Report) sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 7.1%, on average. Shares of VMC have gained 43.1% in the past year.
The Zacks Consensus Estimate for VMC’s 2023 sales and EPS indicates a rise of 5.9% and 27.6%, respectively, from the year-ago period’s levels.
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AECOM (ACM) Stock Rises 41% in a Year: More Room to Run?
AECOM (ACM - Free Report) is likely to benefit from robust contributions across its segments and solid backlog. Also, digital innovation and expansion efforts bode well.
Shares of ACM have gained 40.7% in the past year compared with the Zacks Engineering - R and D Services industry’s rise of 27.6%. Earnings estimates for 2023 have increased to $3.70 per share from $3.67 per share in the past 60 days. This depicts analysts' optimism over the company’s growth prospects.
However, persisting macroeconomic risks and the cyclical nature of its business are potential headwinds.
Image Source: Zacks Investment Research
Growth Drivers
AECOM is witnessing robust prospects in all its segments. The company’s net service revenues or NSR for the second quarter of fiscal 2023 increased 7%, marking the ninth consecutive quarter of accelerating organic growth. NSR — defined as revenues excluding subcontractor and other direct costs — have been benefiting from strength across core transportation, water and environment markets. The total backlog increased to $41.98 billion (including 12% growth in the design business) from $40.8 billion in the prior-year quarter.
The company has a good visibility of strong backlog and pipelines for the upcoming quarters. Based on clients' strengthening funding backdrop, including benefits from the $1.2 trillion infrastructure bill in the United States, AECOM expects the backlog to continue to grow. Overall, the company’s performance demonstrates that it has been outgrowing the industry organically and capturing market share.
AECOM has been benefiting from solid infrastructure spending in the U.K., Canada, Hong Kong and Australia. Owing to the improvement in the global economic scenario, the company is expecting better infrastructural prospects in the international market. The International segment’s backlog at the end of second-quarter fiscal 2023 increased 9.7% year over year, reflecting market share gains and growth visibility.
Digital AECOM, the company’s digital brand, with a portfolio of products that serve clients on their digital transformations, will be a key contributor toward achieving a 15% adjusted operating margin target in 2024. For fiscal 2023, it expects the metric to rise 40 bps year over year.
ACM recently developed and unveiled a proprietary IIJA-specific digital tool as part of the digital AECOM offering, built organically by company experts in response to urgent demand from clients to best position their projects for IIJA funding. In addition, AECOM recently entered into a partnership with Microsoft to leverage its leading cloud technology and further enhance the PlanEngage offering. PlanEngage is now being promoted by Microsoft, creating another channel from which AECOM can deliver innovation to the marketplace.
Headwinds
The demand for AECOM’s services is cyclical. Hence, it is largely vulnerable to reduction in government and private industrial spending. If economic conditions remain uncertain/weak and government spending is reduced, the company’s revenues and profitability could be adversely affected. Moreover, as the company operates across multiple geographies, factors like changes in the United States and other national governments’ trade policies, regulatory practices, tariffs and taxes, further devaluations and other conversion restrictions and logistical & communication challenges might adversely impact the company’s financials.
Zacks Rank & Key Picks
AECOM currently sports a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Zacks Construction sector are:
Dycom Industries, Inc. (DY - Free Report) sports a Zacks Rank #1 (Strong Buy). DY has a trailing four-quarter earnings surprise of 153.7%, on average. Shares of DY have gained 25.2% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for DY’s 2023 sales and EPS indicates a rise of 8.3% and 41%, respectively, from the year-ago period’s levels.
Martin Marietta Materials, Inc. (MLM - Free Report) sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 31%, on average. Shares of MLM have gained 40.5% in the past year.
The Zacks Consensus Estimate for MLM’s 2023 sales and EPS indicates a rise of 19% and 33.1%, respectively, from the year-ago period’s levels.
Vulcan Materials Company (VMC - Free Report) sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 7.1%, on average. Shares of VMC have gained 43.1% in the past year.
The Zacks Consensus Estimate for VMC’s 2023 sales and EPS indicates a rise of 5.9% and 27.6%, respectively, from the year-ago period’s levels.