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Results: AECOM Exceeded Expectations And The Consensus Has Updated Its Estimates

Simply Wall St

Last week, you might have seen that AECOM (NYSE:ACM) released its first-quarter result to the market. The early response was not positive, with shares down 3.8% to US$47.58 in the past week. Revenues of US$3.2b fell slightly short of expectations, but earnings were a definite bright spot, with statutory per-share profits of US$0.19 an impressive 46% ahead of estimates. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we gathered the latest post-earnings forecasts to see what analysts' statutory forecasts suggest is in store for next year.

See our latest analysis for AECOM

NYSE:ACM Past and Future Earnings, February 6th 2020
NYSE:ACM Past and Future Earnings, February 6th 2020

Following the recent earnings report, the consensus fromfour analysts covering AECOM expects revenues of US$13.6b in 2020, implying a concerning 32% decline in sales compared to the last 12 months. Earnings are expected to improve, with AECOM forecast to report a statutory profit of US$1.16 per share. Yet prior to the latest earnings, analysts had been forecasting revenues of US$14.2b and earnings per share (EPS) of US$1.43 in 2020. From this we can that analyst sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a real cut to earnings per share estimates.

What's most unexpected is that the consensus price target rose 8.8% to US$53.83, strongly implying the downgrade to forecasts is not expected to be more than a temporary blip. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values AECOM at US$57.00 per share, while the most bearish prices it at US$48.00. Still, with such a tight range of estimates, it suggests analysts have a pretty good idea of what they think the company is worth.

It can also be useful to step back and take a broader view of how analyst forecasts compare to AECOM's performance in recent years. These estimates imply that sales are expected to slow, with a forecast revenue decline of 32% a significant reduction from annual growth of 7.2% over the last five years. Compare this with our data, which suggests that other companies in the same market are, in aggregate, expected to see their revenue grow 3.6% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - analysts also expect AECOM to grow slower than the wider market.

The Bottom Line

The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. Analysts also upgraded their price target, suggesting that analysts believe the intrinsic value of the business is likely to improve over time.

With that in mind, we wouldn't be too quick to come to a conclusion on AECOM. Long-term earnings power is much more important than next year's profits. We have forecasts for AECOM going out to 2021, and you can see them free on our platform here.

You can also view our analysis of AECOM's balance sheet, and whether we think AECOM is carrying too much debt, for free on our platform here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.