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Aecom (ACM) Down 2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
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A month has gone by since the last earnings report for Aecom Technology (ACM). Shares have lost about 2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Aecom due for a breakout? 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 catalysts.

AECOM Q3 Earnings Beat Estimates, Revenues Up Y/Y

AECOM reported third-quarter fiscal 2018 adjusted earnings per share of 62 cents, beating the Zacks Consensus Estimate of 61 cents.

However, the bottom line declined 20.5% from the year-ago figure of 78 cents.

Revenues in Detail

In the quarter under review, revenues increased 12.9% to $5,147.9 million on a year-over-year basis. Also, the top line surpassed the Zacks Consensus Estimate of $4,883 million.

Moreover, AECOM achieved 10% organic growth in the quarter, which marked the seventh consecutive quarter of positive organic growth. Growth in all its three segments, along with higher-margin Design & Consulting Services (DCS) and Management Services (MS) segments drove the top line.

Segment-wise, Design & Consulting Services (DCS) revenues rose 13% year over year to $2,105.2 million. On a constant-currency basis, organic revenues increased 12%, backed by strong performance in the company’s transportation and water markets in the Americas. This impressive performance can be attributed to improved funding and a strong backlog position.

Construction Services (CS) revenues were up 14.4% to $2,106.7 million on a year-over-year basis. On a constant-currency basis, organic revenues rose 8%. Solid performance of this segment was driven by Building Construction businesses (which registered double-digit growth).

Management Services (MS) revenues increased 9.3% year over year to $936 million. On an organic basis, the metric grew 9%, reflecting stellar performance across its portfolio of projects.

Operating Highlights

AECOM’s adjusted operating income in the quarter under review amounted to $201.9 million, down from the year-ago figure of $239.3 million.

New order wins in the quarter totaled a record $9.4 billion. The company’s total book-to-burn ratio was 1.7%, with significant contribution from all the three segments.

At the end of the fiscal third quarter, AECOM’s total backlog of $54 billion was up 16%, reflecting a favorable mix shift to the higher-margin DCS and MS segments.

Liquidity & Cash Flow

As of Jun 30, 2018, AECOM’s cash and cash equivalents totaled $801.4 million compared with $802.4 million on Sep 30, 2017.

As of Jun 30, 2018, total debt (excluding unamortized debt issuance cost) came in at $3,929.8 million compared with $3,896.4 million on Sep 30, 2017. AECOM generated free cash flow of $48.4 million in the reported quarter.

2018 Guidance

AECOM reiterated its fiscal 2018 guidance. The company continues to expect adjusted earnings per share in the range of $2.50-$2.90. Adjusted EBITDA is expected at around $880 million.

In terms of spending, the company continues to expect interest expenses (excluding amortization of deferred financing fees) of $210 million and capital expenditure at $110 million for 2018. Free cash is expected to be more than $600 million.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Aecom has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Aecom has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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