Demand for building maintenance services is currently in good shape despite a slowdown in the residential construction market, driven by rise in disposable and per capita income, lower unemployment rate and improving consumer confidence. In terms of non-residential, strength in the economy has been driving demand for offices and commercial buildings, a trend that will likely continue in the near to mid-term.
Ebbing trade war and interest rate fears should be a tailwind for the industry. Strict EHS policies in North America and Europe should increase implementation of building maintenance services. Rapid industrialization and urbanization will continue to drive demand for these services.
Notably, The Zacks Building Products - Maintenance Service industry has a Zacks Industry Rank in the top 42% (106 out of the 250 plus groups). This indicates a relatively favorable earnings outlook for the industry.
Given this backdrop, it is not a bad idea to undertake a comparative analysis of two building maintenance services stocks – Rollins, Inc. ROL and ABM Industries Incorporated ABM. Both the stocks are part of the broader Business Services sector (one of the 16 Zacks sectors). While Rollins has a market capitalization of $13.3 billion, ABM Industries’ market cap is $2.3 billion.
As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Rollins clearly scores over ABM Industries in terms of price performance. Shares of Rollins have gained 19.5% in a year’s time, outperforming the 0.6% rise of ABM Industries and 9.4% rise of the industry.
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
Rollin’s earnings for the current year are projected to grow 8.5% while that of ABM Industries are expected to increase 3.2%. For the next year, Rollin’s earnings are expected to grow 9.1% while that of ABM Industries are projected to increase 17.4%. Thus, Rollins has an edge over ABM Industries in terms of current year projected earnings growth. ABM Industries clinches the round in terms of next year earnings growth projections.
Earnings Surprise History
The earnings surprise history of a stock helps investors have an idea of the stock’s performance in the previous quarters.
ABM Industries has an impressive earning surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters with an average positive beat of 6.6%. Rollins reported a negative four quarter average earnings surprise of 1.5%.
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.
Rollins’ TTM net margin of 12.7% places it favorably in comparison to the industry’s figure of 8.4% and ABM Industries’ figure of 2%.
Comparing the two stocks with the industry on the basis of trailing 12-month price-to-earnings (P/E), which is a commonly used multiple for the industry, we see that the Rollins trades at 57.46X, higher than the ABM Industries’ 17.96X. The tally is also ahead of the industry’s 37.27X.
So, ABM Industries looks cheaper than Rollins.
Our comparative analysis shows that while Rollins scores over ABM Industries in terms of year over year price performance, projected earnings growth for the current year and net margin, ABM Industries has an edge in terms of projected earnings growth for the next year and surprise history. A faster share price rally in the past year has led to a rich valuation for Rollins compared with ABM Industries.
Stocks to Consider
A few better-ranked stocks in the broader Business Services sector include Omnicom OMC and Paychex PAYX, each carrying a Zacks Rank of 2 (Buy).
Long-term expected EPS (three to five years) growth rate for Omnicom and Paychex is 4.7% and 8.8%, respectively.
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Omnicom Group Inc. (OMC) : Free Stock Analysis Report
ABM Industries Incorporated (ABM) : Free Stock Analysis Report
Rollins, Inc. (ROL) : Free Stock Analysis Report
Paychex, Inc. (PAYX) : Free Stock Analysis Report
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