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AECOM (ACM) Clinches $3.1B Contract From U.S. Air Force

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AECOM (ACM - Free Report) recently announced that its wholly owned subsidiary, JT4 Limited Liability Company, has clinched a 15-year contract from the U.S. Air Force. This cost-plus-award-fee contract, worth $3.1 billion, is likely to be completed by Apr 15, 2033. Notably, the value of this deal coupled with earlier deals in the services sector, will be booked in AECOM’s backlog in third-quarter fiscal 2018.

Per the contract, JT4 Limited Liability Company will provide the U.S. Air Force with joint range technical services for operating, maintaining and sustaining the western test and training ranges. Work related to the deal will be executed at the 412th Test Wing and the Naval Air Warfare Center Weapons Division in California, the Nevada Test and Training Range, the Utah Test and Training Range as well as the Space Test and Training Range in Colorado.

Our Take

AECOM’s diversified portfolio comprises both designing and construction services. Also, its business is spread across a number of key markets that mitigate operating risks. In fact, more than 70% of the company’s profits are generated from the infrastructure and the defense markets that are poised to benefit from the favorable political climate in the United States and abroad. The global consensus toward the need for substantial infrastructure investments is expected to act as primary growth driver.

Moreover, AECOM is witnessing robust prospects in all of its segments. The Construction Services and the Management Services segments continue to benefit from higher margin work in the building construction businesses. Furthermore, the company’s solid backlog levels, which are a key indicator of future revenue growth, reflect significant opportunities in the forthcoming quarters. In a year’s time, this Zacks Rank #3 (Hold) company has gained 1.3%, against the industry’s decline of 0.7%.

However, volatility in the oil and gas market along with declining prices and contracting spending levels has been hurting AECOM’s projects and orders. This apart, cyclical demand of the company’s services and currency fluctuations are likely to thwart growth, moving ahead.

Stocks to Consider

Some better-ranked stocks from the same space are KBR, Inc. (KBR - Free Report) , Jacobs Engineering Group Inc. (JEC - Free Report) and Quanta Services, Inc. (PWR - Free Report) . All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

KBR surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 14.1%.

Jacobs Engineering Group outpaced estimates in the preceding four quarters, with an average earnings surprise of 12.3%.

Quanta Services exceeded estimates thrice in the trailing four quarters, with an average positive earnings surprise of 6.7%.

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