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Bull of the Day: ABM Industries (ABM)

Todd Bunton

ABM (ABM) recently delivered its 3rd consecutive positive earnings surprise on strong revenue growth and expanding profit margins.

Management raised its full year guidance following its most recent beat, prompting analysts to revise their estimates higher for both 2013 and 2014. This sent the stock to a Zacks Rank #1 (Strong Buy).

Along with strong earnings momentum, ABM offers investors a solid dividend yield and reasonable valuation.

ABM Industries provides all types of facility solutions services to thousands of commercial, governmental, industrial, institutional, retail, and residential facilities located primarily throughout the United States. Around half of its revenue comes from janitorial services (52%), but it also generates revenue from parking services (13%), building & energy services (8%), security (8%) and general facility services (13%).

Second Quarter Results

ABM delivered better than expected second quarter results on June 3. Adjusted earnings per share soared 20% to 36 cents per share, beating the Zacks Consensus Estimate by 3 cents.

Revenues rose 11% to $1.174 billion, which was in-line with consensus. This was driven in large part by recent acquisitions, but organic growth was solid too. The 'Janitorial' segment saw organic top-line growth of 2%, for instance, while 'Facility Services' saw 8% growth.

Meanwhile, adjusted operating income jumped 24% as the company leveraged its fixed expenses.

Increased Guidance

Following the solid second quarter beat, management raised its guidance for the remainder of 2013. The company now expects adjusted EPS of $1.40-$1.50, up from previous guidance of $1.35-$1.45.

President and CEO Henrik Slipsager noted in the Q2 release that the company continues 'to lay the foundation for more revenue and profit growth in the future and look forward to sequential improvement in the back half of the year, particularly in the fourth quarter.' He also noted that the recent acquisitions 'are exceeding expectations'.

This prompted analysts to revise their estimates higher for both 2013 and 2014, sending the stock to a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for 2013 is now $1.45, up from $1.38 before the Q2 report, and at the top-end of guidance. The 2014 consensus is currently $1.55, up from $1.46 over the same period.

Solid Yield, Reasonable Valuation

In the second quarter release, ABM declared its 189th consecutive quarterly dividend. It currently yields a solid 2.5%

Shares currently trade at 16x 12-month forward earnings, which is a slight discount to its 10-year median of 17x and a significant discount to the industry median of 24x.

The Bottom Line

With strong earnings momentum, a solid dividend yield and reasonable valuation, ABM offers investors attractive total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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