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Here's Why You Should Hold on to ABM Industries (ABM) Stock

Zacks Equity Research

ABM Industries Incorporated ABM carries an impressive Growth Score of A. This style score condenses all the essential metrics from the company’s financial statements to get a true sense of the quality and sustainability of its growth.

The company’s shares have gained 16.7% over the past year, against the 1.6% decline of the industry it belongs to.

What’s Aiding the Stock?

As part of 2020 Vision, ABM’s comprehensive transformation initiative, it has centralized key functional areas, strengthened sales capabilities and started investments in service delivery tools and processes to improve standard operating practices. These initiatives are contributing significantly to top- and bottom-line growth.

In 2015, when ABM began this initiative, revenues were $4.9 billion, adjusted EBITDA margin was 3.8%, and adjusted EPS was a $1.62 per share. In the last four years, revenues, margins and earnings were up by around 30%, 40% and 30% respectively. ABM continues to focus on optimizing revenue management, increasing client retention and improving labor management through process and technology.

Some Risks

ABM is a labor company at core with direct labor cost comprising the majority of its expense line. A tight labor market is compelling the company to pay higher to attract and retain employees. Labor related headwind is weighing on ABM’s operating performance.

ABM’s balance sheet is highly leveraged. At the end of fourth-quarter fiscal 2019, long-term debt was $744.2 million while cash and cash equivalents were $58.5 million. Such a cash position implies that ABM needs to generate adequate amount of operating cash flow to service its debt. Also, high debt may limit the company’s future expansion and worsen its risk profile.

Zacks Rank & Stocks to Consider

ABM currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are Advanced Disposal Services ADSW, The Western Union Company WU and Accenture ACN. While Advanced Disposal and Western Union sport a Zacks Rank #1 (Strong Buy), Accenture carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected EPS (three to five years) growth rate for Advanced Disposal, Western Union and Accenture is 10%, 12.3% and 10.3%, respectively.

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ABM Industries Incorporated (ABM) : Free Stock Analysis Report
 
Accenture PLC (ACN) : Free Stock Analysis Report
 
Advanced Disposal Services Inc. (ADSW) : Free Stock Analysis Report
 
The Western Union Company (WU) : Free Stock Analysis Report
 
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