On Dec 2, 2013, we reaffirmed our Neutral recommendation on ABM Industries Inc (ABM) .The reiteration was based on the company’s strong third quarter fiscal 2013 results, realignment of its operational structure to improve its long-term growth prospects and higher margin opportunities. However, intense competitive pressure and integration costs from increased acquisitions are likely to undermine the positives to some extent.
Why the Neutral Recommendation?
ABM Industries has developed a platform to deliver an end-to-end service model to its clients by realigning its operational structure to an on-site, mobile and on-demand market based structure. This realignment is likely to improve its long-term growth prospects and provide higher margin opportunities by enabling it to better deliver end-to-end services to its clients across urban, suburban and rural areas.
The company further expects to extend its global footprint as well as strengthen its position in existing markets through both inorganic and organic growth across the industry verticals. The company’s strategy also entails a diligent focus to maintain steady profit margins, keeping overall costs low.
However, the company faces intense competition from local and national players. Furthermore, the company faces indirect competition from building owners or tenants, who perform one or more of these services internally in order to cut down costs, especially in the areas where external services are subject to sales tax.
Also, the company largely depends on inorganic growth and the failure to make new acquisitions on a regular basis may hamper its growth rate.
Nevertheless, over the last 60 days, the Zacks Consensus Estimate for ABM Industries’ 2013 earnings per share moved up by 0.7% to $1.48. Also, for 2014, it increased by 0.6% to $1.62 per share.
Other Stocks to Consider
ABM Industries currently has a Zacks Rank #2 (Buy). Other stocks worth considering in the industry include Stantec Inc (STN) and CoreLogic, Inc (CLGX), holding a Zacks Rank #1 (Strong Buy), and Rollins Inc (ROL), holding a Zacks Rank #2 (Buy).