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ABM Industries Augments UK Footprint With Key Contract Wins

Zacks Equity Research

Leading provider of facility solutions, ABM Industries Incorporated ABM recently extended its footprint in the U.K. with key contract wins across the country. The company reportedly secured contracts worth $100 million (£75 million) in annualized revenues to consolidate its regional presence.

These include a five-year contract for facilities services from Transport for London, the government organization responsible for London’s transport system. Per the contract, ABM will be responsible for the cleaning of Tube stations, trains, bus depots, head office buildings and the London Transport Museum. In addition to being associated with iconic sites and public transport facilities, the contract offers ABM the opportunity to boost the regional economy by employing approximately 3,000 people.

ABM also won lucrative contracts from Thomas More Square, the Belfry Shopping Centre and Wagamama restaurants in London. Further, the company was awarded a three-year contract by retail shopping center, The Centre, in Livingston, Scotland. The contract offers ABM the opportunity to provide various services like cleaning, security, customer service and facilities management.

ABM 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 has improved its long-term growth prospects and provides 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 and strengthen its position in existing markets through both inorganic and organic growth across the industry verticals.

The company has embarked on a Vision 2020 Plan that outlines its long-term vision for the next five years and hinges on three primary phases, the first of which is aimed to increase the efficiency of the company through diligent execution of the operating plan and stringent cost-reduction activities. The second phase will focus on driving growth across the realigned verticals through effective realization of the cost savings from procurement, account management and other organizational changes. The final phase of the transformation will include accelerated growth impetus from the vertical alignment and account planning systems with a continuous focus on additional cost savings. ABM is currently focusing on the second phase of the plan and remains confident of achieving $40–$50 million in savings through operational efficiencies by the end of 2017. These systematic and strategic plans of action are likely to help ABM fuel its growth momentum.

However, ABM has underperformed the industry with an average year-to-date return of 5.7% compared with a gain of 14.1% for the latter. It has a significant presence in the U.K. and as the European economy is highly unpredictable post the Brexit referendum, it becomes difficult for it to increase revenues and reduce costs. The company is likely to be stifled by the renegotiated deals and restrictions imposed on trade with other European Union members. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering the productivity of the company. Strong competitive pressure could also limit the company’s success rate in bidding for profitable businesses and its ability to increase prices in accordance with the rising costs.

ABM currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include RPX Corporation RPXC, SPS Commerce, Inc. SPSC and Healthcare Services Group, Inc. HCSG, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

RPX Corporation has beaten earnings estimates thrice in the trailing four quarters with a positive surprise of 45.7%.

SPS Commerce has a long-term earnings growth expectation of 25%. It has beaten earnings estimates in each of the trailing four quarters with a positive surprise of 139.9%.

Healthcare Services Group has a long-term earnings growth expectation of 11%.

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