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Aecom (ACM) Down 4.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Aecom Technology (ACM). Shares have lost about 4.1% 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 (ACM) Q4 Earnings & Revenues Top Estimates

AECOM reported fourth-quarter fiscal 2020 results, wherein earnings and revenues beat the respective Zacks Consensus Estimate.

Gaurav Kapoor, AECOM’s chief financial officer said, “We delivered strong EBITDA growth and free cash flow, which, along with the sale of the Management Services, contributed to a substantial debt reduction and the commencement of share repurchases”.

Delving Deeper

Adjusted earnings per share of 60 cents topped the consensus mark of 57 cents by 5.3% but declined 8% year over year. Revenues of $3,569 million beat the Zacks Consensus Estimate of $3,335 million by 7% and grew 1.6% year over year.

Segment Details

AECOM reports through three segments: Americas, which consists of the company’s business in the United States, Canada and Latin America; International, which includes the businesses in the EMEA and Asia-Pacific regions; and AECOM Capital.

Americas revenues were up 2% year over year to $2,732.3 million. However, net service revenues or NSR of $929 million for the quarter dropped 6% year over year on a constant-currency organic basis. Growth in the Construction Management business was offset by a decline in the Americas design business. Adjusted operating income of $157 million dropped 3.7% year over year.

International revenues were unchanged on a year-over-year basis to $831.1 million. On a constant-currency organic basis, NSR decreased 11% from a year ago to $630 million for the quarter. Adjusted operating income in the segment rose 10.8% year on year to $41 million.

AECOM Capital (ACAP) — which develops real estate, public private partnership and infrastructure projects — contributed $5,579 million to total revenues versus $1,336 million a year ago. The segment recorded operating loss of $0.6 million.

Operating Highlights

Adjusted operating margin for the quarter amounted to 12.7%, down 10 basis points (bps) from the year-ago level. Adjusted EBITDA remained flat year over year to $204 million.

At fiscal 2020-end, the company’s total backlog was $41.2 billion, up 13% from the prior-year figure. New order wins during fiscal 2020 were recorded at $18.2 billion. Its total book-to-burn ratio was 1.3, on account of solid performance in the Americas business.

Fiscal 2020 Highlights

Revenues of $13,240 million declined 3% from a year ago. Adjusted segment operating margin of 12.3% improved 160 bps. Adjusted EBITDA grew 14% year over year to $746 million, marking a new high for the Professional Services business. Adjusted EPS of $2.15 grew from $1.86 a year ago.

Liquidity & Cash Flow

As of Sep 30, 2020, AECOM’s cash and cash equivalents totaled $1,708.3 million, up from $885.6 million at fiscal 2019-end.

As of fiscal 2020, total debt (excluding unamortized debt issuance cost) was $2.09 billion, down from $3.35 billion at fiscal 2019-end. Of the total debt, it had $250 million of net debt and was undrawn under the $1.35-billion revolving credit facility.

Restructuring Update

AECOM is focused on the ongoing restructuring initiatives and expects to boost margins substantially, going forward. Its restructuring expenses are expected in the range of $30-$50 million.

Fiscal 2021 Guidance

AECOM expects adjusted EBITDA in the range of $790-$830 million. The company reiterated free cash flow projection of $425-$625 million. Adjusted EPS is expected in the range of $2.55-$2.75. It expects to deliver 9% adjusted EBITDA growth and 23% adjusted EPS improvement in fiscal 2021 at the mid-point of the respective guidance ranges.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -20.66% due to these changes.

VGM Scores

Currently, Aecom has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision 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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