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Why is Buy Strategy Apt for AECOM (ACM) Stock Right Now?

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AECOM (ACM - Free Report) has been benefiting from most of the U.S. government’s broad infrastructural plans. Also, the company has strong cross border prospects.

So far this year, shares of AECOM have gained 30.2%, in line with the Zacks Engineering - R and D Services industry’s 30.2% rally. Notably, earnings estimates for the fiscal third quarter, fourth quarter and full-year fiscal 2021 have moved up 4.4%, 4.1% and 1.9%, respectively, over the past 30 days. This trend signifies bullish analyst sentiments and justifies the company’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.

The company also has a solid earnings surprise history. AECOM’s earnings surpassed the Zacks Consensus Estimate in 12 of the trailing 14 quarters.

Major Growth Drivers

AECOM has been continuously focusing on innovation for delivering industry-leading margins. The company is witnessing growth opportunities across all segments. It enjoys an exclusive control over most of the U.S. government’s large infrastructural plans. AECOM’s net service revenues or NSR has been benefiting from strength in core transportation, water and environment markets, wherein it has a dominant market share. At the fiscal second quarter-end, the company’s backlog amounted to $39.4 billion that is almost in line with the fiscal first quarter 2021-end level. Also, the company has a robust backlog in the pipeline for the upcoming quarters.

AECOM has been trying to boost profitability and reduce risk factors in its business. Lately, the company has been taking a lot of initiative to remodel its business into a pure-play professional services firm. Consequently, the company is winding down many global low-profit businesses to focus on markets with better opportunities. The company will be allocating more resources toward providing comprehensive solutions to these clients/markets.

In October 2020, it wrapped up the Power construction business divestiture. During the second-quarter of fiscal 2021, the company witnessed an increase in gross profit on reduced costs and a simplified operating structure resulting from its restructuring activities in the previous quarters.

In addition to the domestic market, AECOM has very strong prospects in the global market. As a result of the global economic improvement, the company is gaining varied opportunities and access to international contracts.

AECOM has been benefiting from solid infrastructure spending in the United Kingdom, Canada, Hong Kong and Australia. Overall, the international segment’s backlog — including record contracted backlog — grew 16% for second-quarter fiscal 2021, reflecting market share gains and visibility into growth.

AECOM’s performance in the Asia-Pacific region continues to be strong backed by public-sector infrastructure investment in Australia and New Zealand. The company’s transportation business in Australia is witnessing a rebound. It can be said that the global need for infrastructural development has been a boon for AECOM and companies like Jacobs Engineering Group Inc. (J - Free Report) , KBR, Inc. (KBR - Free Report) and Fluor Corporation (FLR - Free Report) in the same industry.

Furthermore, AECOM’s superior return on equity (ROE) is indicative of its growth potential. The company’s ROE currently stands at 11.5%. This compares favorably with ROE of 6.5% for the industry it belongs to. This indicates efficiency in using its shareholders’ funds and ability to generate profit with minimum capital usage.

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