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Strength in construction business, along with rise in manufacturing and service activities, is enabling the Zacks Building Products - Maintenance Services industry to support the demand environment that is getting healthier.
Service essentiality, technology and capital-management measures are aiding and ABM Industries Incorporated (ABM), Rollins, Inc. (ROL), Team, Inc. (TISI) to sail through these testing times.
About the Industry
Companies grouped under the Zacks Building Products - Maintenance Services category provide a wide range of services, including electrical, lighting, cleaning, repair, replacement, heating, ventilation, air-conditioning (HVAC), plumbing, landscaping, and pest control.
What’s Shaping the Future of Building Maintenance Industry?
Demand Expansion: Revenues, income and cash flows have been increasing for the past several years, mainly because the companies offer services that consumers generally cannot delay. This has enabled most industry players to increase dividends.
Manufacturing and Service in the Pink: With both manufacturing and service activities gathering steam, demand for building maintenance services is anticipated to rise steadily. Notably, economic activity in the manufacturing sector expanded 3.9% from March to February, as the Manufacturing PMI measured by Institute for Supply Management (ISM) touched 60.8%. This is the 10th consecutive month of expansion after April’s contraction that had interrupted an impressive growth rally of 131 consecutive months. Non-manufacturing activities clocked 8.4% growth from March to February, as the Services PMI measured by ISM touched the all-time high of 63.7%. This is the 10th consecutive month of expansion after a two-month period of contraction that followed 122 straight months of expansion.
Reviving Construction Spending: The construction business, on which the industry is largely dependent upon, is gradually recovering from the pandemic-induced weakness. Per the latest release by the U.S. Census Bureau, construction spending during February 2021 was estimated at a seasonally-adjusted annual rate of $1,516.9 billion, up 5.3% from the February 2020 estimate. During the first two months of this year, construction spending increased 4.9% from the same period in 2020.
Zacks Industry Rank Indicates Bright Prospects
The Building Products - Maintenance Service industry, which is housed within the broader Business Services sector, currently carries a Zacks Industry Rank #72. This rank places it in the top 29% of more than 250 Zacks industries.
The group’s Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The sell-side analysts covering the companies in this industry have been steadily pushing theirestimates north. Over the past year, the industry’s consensus earnings estimate for 2021 hasmoved 20.9% north.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and current valuation.
Industry Outperforms the Sector, Lags S&P 500
Over the past year, the Zacks Building Products - Maintenance Service industry has outperformed the broader sector but lagged the S&P 500 composite.
While the industry has appreciated 40.3%, the S&P 500 composite has rallied 48.2%. The broader sector has gained 15.2%.
One-Year Price Performance
Industry’s Current Valuation
Comparing the industry with the S&P 500 composite on the basis of forward 12-month price-to-earnings (P/E), which is a commonly-used multiple for the industry, we see that the industry trades at 43.16X, higher than the S&P 500’s 22.99X and the sector’s 30.44X.
Over the past five years, the industry has traded as high as 72.32X, as low as 25.44X and at a median of 36.77X.
Forward 12-month Price-to-Earnings (P/E)
3 Building Maintenance Stocks to Consider
We present three stocks that currently carry a Zacks Rank #1 (Strong Buy) or a Zacks Rank #3 (Hold) and are well positioned for near-term growth. You can see the complete list of today’s Zacks #1 Rank stocks here.
ABM Industries Incorporated: This integrated facility solutions provider currently flaunts a Zacks Rank of 1. The company is benefiting from its centralized key functional areas and reinforced sales capabilities. It has begun investing in service delivery tools and processes for supporting standard operating practices that are important for its long-term success.
ABM's strategy entails growth through acquisitions, while maintaining desirable profit margins. The acquisition of GCA Services Group has expanded its long-term operational and financial position, and is making significant contributions to overall operational results predominantly within the Technology & Manufacturing, Business & Industry and Education segments.
The Zacks Consensus Estimate for fiscal 2021 EPS has moved 33.3% north in 60 days’ time. The stock has rallied 56.1% in a year’s time.
ABM: One-Year Price Performance
Rollins, Inc.: This leading pest and termite control services provider is benefiting from its balanced approach to organic and inorganic growth. The company’s organic revenue growth rate is healthy, backed by solid technician and customer retention. Also, acquisitions are a major growth catalyst in Rollins’ business strategy.
Rollins currently carries a Zacks Rank #3. The Zacks Consensus Estimate for the ongoing-year EPS has remained unchanged at 62 cents in the past 60 days. The stock has appreciated 32.4% over the past year.
ROL: One-Year Price Performance
Team, Inc.: This global provider of asset performance assurance and optimization solutions utilized its asset-light and scalable operating structure, and depth and breadth of its products and services, to meet business demands through 2020. The company is focused on cost saving, cash conservation and generation of free cash flow.
Team carries a Zacks Rank #3, at present. Shares of the company have rallied a massive 74.4% in the past year.
TISI: One-Year Price Performance
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