On Jan 7, Zacks Investment Research downgraded AECOM Technology Corporation (ACM - Analyst Report) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
AECOM has witnessed sharp downward estimate revisions after reporting lesser-than-expected fourth-quarter 2013 results. Moreover, weak cash and balance sheet position does not facilitate enough flexibility to make innovative investments and make strategic acquisitions.
On Nov 13, AECOM reported fourth quarter net income of $76.6 million or 77 cents per share, falling short of the Zacks Consensus Estimate of 79 cents per share.The company reported total revenue of $2,079.1 million, marginally down 0.2% year over year. The revenues were primarily impacted by the dismal performance of the Management Support Services segment in the quarter.
The company is experiencing slower-than-expected growth on both the top and bottom lines. Furthermore, a sluggish federal demand remains a challenge for AECOM going forward.
Moreover, declining demand from Australia was a drag for the company’s revenues in 2013, and the situation is likely to continue in 2014. This business has been sluggish primarily due to the weakness in the mining sector. Also, the projects included in the company’s backlog are usually long-cycle projects, which run the risks of getting delayed or cancelled; thereby impacting AECOM’s operations and cash flows.
AECOM has also been planning to reposition its MSS (Management Support Services) business to make it more profitable. The company plans to shift from higher-volume lower-margin international work to lower-volume higher-margin work in the U.S. The resultant decrease in volume is likely to impact the company’s revenues and earnings until the desired margin levels are achieved.
The Zacks Consensus Estimate for first-quarter 2014 decreased 8.5% to 54 cents per share over the last 60 days. For fiscal 2014, all of the 10 estimates were revised downward over the last 60 days, dragging the Zacks Consensus Estimate by 9.6% to $2.45 per share.
Other Stocks to Consider
Other stocks worth considering include Pioneer Power Solutions, Inc. (PPSI - Snapshot Report) with a Zacks Rank #1 (Strong Buy), and Foster Wheeler AG and Altra Industrial Motion Corp. (AIMC - Analyst Report) , both carrying a Zacks Rank #2 (Buy).