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ABM Scales a New 52-Week High on Holistic Growth Impetus

Zacks Equity Research

Shares of leading provider of facility solutions ABM Industries Inc. ABM scaled a new 52-week high of $45.12 during yesterday’s trading session, before closing a tad lower at $44.51 for a modest year-to-date return of 9%. Barring minor hiccups, the company’s share price has been on an uptrend since mid-July. Despite the strong price appreciation, this Zacks Rank #3 (Hold) stock has the fundamentals to scale higher.

Growth Drivers

Over the years, ABM has developed a platform to deliver end-to-end service model to its clients by realigning its operational structure into an on-site, mobile and on-demand market-based structure. This realignment has improved its long-term growth prospects and opened up 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 the existing markets through both inorganic and organic means across the industry verticals.

Last month, ABM inked a definitive agreement to acquire GCA Services Group Inc., a leading national provider of quality facility services for the educational sector. GCA Services derives majority of its revenues from the education sector and aims to grow further as more school districts outsource their facility management to cut costs and invest the same in teachers and equipment. The deal will help ABM enhance its service offerings as both the companies offer similar services. In addition, the acquisition will boost the company’s footprint in the educational sector.

ABM Industries Incorporated Price and Consensus

 ABM Industries Incorporated Price and Consensus | ABM Industries Incorporated Quote

In order to fuel its growth momentum, ABM has also embarked on a Vision 2020 plan that outlines its vision for the next five years. The plan has three primary phases, the first aimed at increasing 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 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 has successfully completed the first phase of the Vision 2020 plan. The company 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.

ABM’s comprehensive and transformative initiatives are focused on driving sustainable profitability by effectively allocating resources to high-margin services and business verticals with a strong competitive edge. Management also disclosed that corporate restructuring initiatives are well on track to yield sustained long-term growth momentum. The company’s recent inclusion in the Fortune 500 list raises its goodwill in the industry and augments its position in the market.

All these measures for a relatively healthy growth impetus for the near future probably raised investor confidence and drove its shares to a 52-week high.

Stocks to Consider

Better-ranked stocks in the industry include Rollins, Inc. ROL, TransUnion TRU and The Dun & Bradstreet Corporation DNB, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Rollins is currently trading at a forward P/E of 51.3x.

TransUnion has a long-term earnings growth expectation of 10%. It has beaten estimates thrice over the trailing four quarters with an average earnings surprise of 11.8%.

Dun & Bradstreet has a long-term earnings growth expectation of 9%. It has beaten estimates thrice over the trailing four quarters with an average earnings surprise of 7.2%.

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