AECOM (ACM - Free Report) has been benefiting from strong net service revenues (“NSR”) and backlog growth. Also, higher infrastructure spending and the emphasis on digital initiatives bode well.
Shares of ACM have gained 18.9% in the past year compared with the Zacks Engineering - R and D Services industry’s rise of 37.7%. Although it has underperformed its industry, it has a long-term earnings growth rate of 11%. The stock currently holds a VGM Score of A, supported by a Growth score of A, Momentum Score of B and Value score of C.
However, persisting macroeconomic risks and the cyclical nature of its business are potential headwinds.
Growth Drivers
Robust NSR Growth: AECOM is witnessing robust prospects in all its segments. The company’s NSR — defined as revenues excluding subcontractor and other direct costs — has been benefiting from its design business courtesy of growth witnessed across all major operating geographies. NSR for the third quarter of fiscal 2023 increased 10%, marking the 10th consecutive quarter of accelerating organic growth. AECOM’s pipeline of opportunities is up in double digits in the Americas design business.
Strong Backlog: AECOM has good visibility of strong backlogs and pipelines for the upcoming quarters. The contracted backlog in the third quarter of fiscal 2023 was up 1.4% year over year. The total backlog increased to $41.63 billion (including 10% growth in the design business) from $41.13 billion in the prior-year quarter.
Based on clients' strengthening funding backdrop, including benefits from the $1.2-trillion infrastructure bill in the United States, AECOM expects backlog to continue to grow.
Digital Efforts: The Management remains focused on leveraging the company's scale and technical leadership by simplifying the operating model to drive greater collaboration across the business and push digital innovation. Digital AECOM, the company’s digital brand with a product portfolio that serves clients on their digital transformations, will be a key contributor toward achieving a 17% adjusted operating margin target in 2024. For fiscal 2023, it expects the metric to rise 40 basis points (bps) year over year to 14.6%.
In the third quarter of fiscal 2023, the company stated its focus on making strategic investments to increase its workforce's capacity and efficiency. The investments will be made in digital delivery capabilities and automating repeatable elements of the design process. The investment decisions are considered in alignment with the increased demand for its services across operating markets.
Increased Infrastructure spending: AECOM has benefited 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 third-quarter fiscal 2023 increased 17.6% to $6.35 billion year over year, reflecting market share gains and growth visibility. Also, NSR increased 8% to $688.9 million from the prior-year period. Management remains confident of attaining its goal of double-digit International margins by 2024.
Concerns
The demand for AECOM’s services is cyclical. Hence, it is mainly vulnerable to government and private industrial spending reduction. If economic conditions remain uncertain/weak and government spending is reduced, the company’s revenues and profitability could be adversely affected.
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 affect 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:
Boise Cascade Company (BCC - Free Report) sports a Zacks Rank #1 (Strong Buy). BCC has a trailing four-quarter earnings surprise of 25.5% on average. Shares of BCC have gained 72.9% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BCC’s 2023 sales and earnings per share (EPS) indicates a decline of 20.1% and 45.5%, respectively, from the year-ago period’s levels.
EMCOR Group, Inc. (EME - Free Report) flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 17.2%, on average. Shares of EME have risen 79.7% in the past year.
The Zacks Consensus Estimate for EME’s 2023 sales and EPS suggests growth of 11.3% and 35.4%, respectively, from the year-ago period’s levels.
TopBuild Corp. (BLD - Free Report) flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 14.1% on average. Shares of BLD have surged 49.9% in the past year.
The Zacks Consensus Estimate for BLD’s 2023 sales and EPS indicates gains of 3.3% and 8.4%, respectively, from the year-ago period’s levels.
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It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
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AECOM (ACM - Free Report) has been benefiting from strong net service revenues (“NSR”) and backlog growth. Also, higher infrastructure spending and the emphasis on digital initiatives bode well.
Shares of ACM have gained 18.9% in the past year compared with the Zacks Engineering - R and D Services industry’s rise of 37.7%. Although it has underperformed its industry, it has a long-term earnings growth rate of 11%. The stock currently holds a VGM Score of A, supported by a Growth score of A, Momentum Score of B and Value score of C.
However, persisting macroeconomic risks and the cyclical nature of its business are potential headwinds.
Growth Drivers
Robust NSR Growth: AECOM is witnessing robust prospects in all its segments. The company’s NSR — defined as revenues excluding subcontractor and other direct costs — has been benefiting from its design business courtesy of growth witnessed across all major operating geographies. NSR for the third quarter of fiscal 2023 increased 10%, marking the 10th consecutive quarter of accelerating organic growth. AECOM’s pipeline of opportunities is up in double digits in the Americas design business.
Strong Backlog: AECOM has good visibility of strong backlogs and pipelines for the upcoming quarters. The contracted backlog in the third quarter of fiscal 2023 was up 1.4% year over year. The total backlog increased to $41.63 billion (including 10% growth in the design business) from $41.13 billion in the prior-year quarter.
Based on clients' strengthening funding backdrop, including benefits from the $1.2-trillion infrastructure bill in the United States, AECOM expects backlog to continue to grow.
Digital Efforts: The Management remains focused on leveraging the company's scale and technical leadership by simplifying the operating model to drive greater collaboration across the business and push digital innovation. Digital AECOM, the company’s digital brand with a product portfolio that serves clients on their digital transformations, will be a key contributor toward achieving a 17% adjusted operating margin target in 2024. For fiscal 2023, it expects the metric to rise 40 basis points (bps) year over year to 14.6%.
In the third quarter of fiscal 2023, the company stated its focus on making strategic investments to increase its workforce's capacity and efficiency. The investments will be made in digital delivery capabilities and automating repeatable elements of the design process. The investment decisions are considered in alignment with the increased demand for its services across operating markets.
Increased Infrastructure spending: AECOM has benefited 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 third-quarter fiscal 2023 increased 17.6% to $6.35 billion year over year, reflecting market share gains and growth visibility. Also, NSR increased 8% to $688.9 million from the prior-year period. Management remains confident of attaining its goal of double-digit International margins by 2024.
Concerns
The demand for AECOM’s services is cyclical. Hence, it is mainly vulnerable to government and private industrial spending reduction. If economic conditions remain uncertain/weak and government spending is reduced, the company’s revenues and profitability could be adversely affected.
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 affect 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:
Boise Cascade Company (BCC - Free Report) sports a Zacks Rank #1 (Strong Buy). BCC has a trailing four-quarter earnings surprise of 25.5% on average. Shares of BCC have gained 72.9% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BCC’s 2023 sales and earnings per share (EPS) indicates a decline of 20.1% and 45.5%, respectively, from the year-ago period’s levels.
EMCOR Group, Inc. (EME - Free Report) flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 17.2%, on average. Shares of EME have risen 79.7% in the past year.
The Zacks Consensus Estimate for EME’s 2023 sales and EPS suggests growth of 11.3% and 35.4%, respectively, from the year-ago period’s levels.
TopBuild Corp. (BLD - Free Report) flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 14.1% on average. Shares of BLD have surged 49.9% in the past year.
The Zacks Consensus Estimate for BLD’s 2023 sales and EPS indicates gains of 3.3% and 8.4%, respectively, from the year-ago period’s levels.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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