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AECOM (ACM) Receives Contract Extension Worth $725M From DOE

Zacks Equity Research

AECOM ACM, has received a contract extension from the U.S. Department of Energy (DOE) for the Washington River Protection Solutions contract. The estimated value of the contract extension — approximately $725 million — will be added to AECOM’s backlog in fourth-quarter fiscal 2019. The contract extension will run up to 12 months, starting from Oct 1, 2019.

With this extension, Washington River Protection Solutions — an AECOM-led joint venture — will manage retrieval and treatment of radioactive tank waste to protect the Hanford Site, in turn fortifying the Management Services business.

AECOM has been helping the DOE at the Hanford Site with liquid waste disposition for many years. Over the past several years, AECOM and legacy businesses have been providing cost-effective and innovative solutions worldwide to help the government achieve missions successfully.

The company has robust prospects across the board. Specifically, the MS business, which contributed 19.9% to total second-quarter fiscal 2019 revenues, continues to benefit from higher-margin government works.

Notably, the segment’s revenues increased 13.6% in the fiscal second quarter, backed by 14% organic revenue growth and significant contract wins. The company sees several years of visibility in backlog, given compelling DoD prospects and high-margin DOE opportunities.

The Management Services segment, whose backlog increased nearly 127% since the start of fiscal 2017, exited first-half fiscal 2019 with more than $3 billion of wins. It continues to proceed with more than $30 billion pipeline of pursuits. The company expects its impressive level of backlog of large commercial, stadia, and power projects to drive another year of revenue and margin growth.

Share Price Performance

AECOM’s shares have gained 28.2%, comparing favorably with its industry’s rally of 9.7% in the year-to-date period. The company’s endeavors to improve profitability by focusing more on fastest-growing markets having more competitive advantages are expected to drive growth.

Zacks Rank & Key Picks

Currently, AECOM carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Construction sector include MasTec, Inc. MTZ, KBR, Inc. KBR and Jacobs Engineering Group Inc. JEC. While MasTec sports a Zacks Rank #1 (Strong Buy), KBR and Jacobs each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings for MasTec are expected to increase 32.4% in 2019.

KBR surpassed earnings estimates in all the trailing four quarters, with the average being 8.7%.

Jacobs has a three-five year expected EPS growth rate of 11%.

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