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AECOM (ACM) Up 7.4% Since Earnings Report: Can It Continue?

Zacks Equity Research

It has been more than a month since the last earnings report for AECOM ACM. Shares have added about 7.4% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AECOM Earnings and Revenues Surpass Estimates in Q4

AECOM reported fourth-quarter fiscal 2017 results, wherein adjusted earnings per share came in at 74 cents, beating the Zacks Consensus Estimate of 71 cents. Also, the bottom line was 13.8% higher than the year-ago tally of 65 cents. The improvement was primarily attributable to the company’s impressive top-line performance.

However, for fiscal 2017, the company’s adjusted earnings fell 2% to $2.94 from the prior-year tally.

Revenue Performance

For the fiscal fourth quarter, revenues increased 12.3% year over year to $4,856.4 million and beat the Zacks Consensus Estimate of $4,674 million. Further, the company achieved 9% organic growth in the fiscal fourth quarter, which was the highest in several years. The impressive performance of Building Construction and Power business, along with improved performance of Oil & Gas business proved favorable for the top line.

For fiscal 2017, the company’s top line increased 4.6% to a record $18,203.4 million from the year-ago tally of $17,410.8 million.

Segment wise, Design & Consulting Services (DCS) revenues rose 4.6% year over year to $1,995 million. On a constant-currency basis, organic revenues increased 4% due to improved performance in the Americas driven by transportation and water markets.

Construction Services (CS) revenues surged 26.3% to $1,971 million on a year-over-year basis. Stellar performance in the building construction and Power businesses drove the impressive performance.

This apart, Management Services (MS) revenues registered a year-over-year increase of 3.9% to $890.4 million.

Moreover, AECOM’s adjusted operating income in the fiscal fourth quarter was $199 million, up from the year-ago tally of $186.8 million. New order wins in the quarter totaled $4.9 billion. Also, AECOM’s total book-to-burn ratio during the quarter was 0.9%, with significant contribution from the DCS Americas and Management Services businesses.

At the end of the fiscal fourth quarter, AECOM’s total backlog was at an all-time high of $47.5 billion, up 11%, driven by the higher-margin DCS and MS segments. This included record backlog in the DCS segment and a whopping 47% growth in MS segment. Further, the recent Shimmick acquisition contributed about $1.4 billion to the backlog.

Liquidity & Cash Flow

As of Sep 30, 2017, AECOM’s cash and cash equivalents totaled $802.4 million compared with $692.1 million as of Sep 30, 2016. Total debt was $3,896.4 million compared with $4,125.3 million on Sep 30, 2016.

In the fiscal fourth quarter, AECOM generated free cash flow of $231.4 million, down 29% year over year. For fiscal 2017, the company’s free cash flow totaled $618.2 million, compared with $677.4 million in fiscal 2016.

2018 Guidance

Concurrent with the earnings release, AECOM provided its fiscal 2018 guidance. The company expects adjusted earnings per share to be in the range of $2.50-$2.90, which reflects a growth of 10% at the mid-point. This figure includes roughly 20 cents of anticipated gains related to AECOM Capital realizations.

In terms of spending, the company projects to incur interest expense (excluding amortization of deferred financing fees) of $210 million and capital expenditures of $110 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

AECOM Price and Consensus

 

AECOM Price and Consensus | AECOM Quote

VGM Scores

At this time, the stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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