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AECOM-Led Joint Venture Secures Contract Extension From DOE

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AECOM (ACM - Free Report) recently announced that Savannah River Remediation LLC — a joint venture led by AECOM — has secured a liquid waste management contract extension from the U.S. Department of Energy’s (DOE’s) Savannah River Operations Office in Aiken, SC. Valued at $450 million, this contract extension is effective from Jun 1, 2018 to Mar 31, 2019. Notably, the value of this deal will be booked in AECOM’s backlog in second-quarter fiscal 2018.

Per the deal, Savannah River Remediation will provide services including operation of the Defense Waste Processing Facility and Saltstone Processing Facility. Also, this AECOM-led joint venture will work on the progress of the Tank Closure Cesium Removal demonstration and construction project as well as the construction of Saltstone Disposal Unit 7. Notably, the company’s comprehensive experience in liquid waste disposition will help in managing the radioactive waste system at the site safely, thus reducing the area’s environmental risk.

Existing Business Scenario

AECOM has been witnessing robust prospects across all of its business segments. Evidently, all three segments of the company performed exceedingly well in the fiscal second quarter, with strong growth in building construction and steady improvement in Americas design business. Meanwhile, increase in the proportion of higher margin work in building construction businesses is benefiting AECOM’s Construction Services and Management Services segments. Further, the company’s solid backlog levels may lead to solid revenue growth in the forthcoming quarters.

Moreover, this Zacks Rank #3 (Hold) company’s diversified portfolio comprises both designing and construction services. Also, its business is spread across a number of key markets that mitigates operating risks. Moving ahead, the company remains confident that favourable political climate will continue unlocking growth opportunities of the infrastructure and defense markets, which generate more than seventy percent of its profits.

In a year’s time, shares of AECOM have gained 4% against the industry’s decline of 0.9%.

However, volatility in the oil and gas market with declining prices and contracting spending levels has been hurting the company’s projects and orders. In addition, cyclical demand for AECOM’s services and currency fluctuations are likely to thwart growth moving ahead. This apart, lower capital spending on part of major clients remains a major concern for the company.

Stocks to Consider

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

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

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

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

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