ABM Industries Incorporated

ABM Details

ABM Industries Incorporated (NYSE: ABM) provides integrated facility solutions through five business segments: Aviation, Business & Industry (B&I), Education, Technology & Manufacturing (T&M), and Technical Solutions. Its various business segments include janitorial, parking, facility services, building & energy solutions, and airline services. The Business & Industry division accounts for most of the company's revenue.

Latest News:

• Launch of Business Venture Program: ABM Ventures, the company's business venture programme, was launched on May 31, 2022, as a significant extension of its ELEVATE strategy to accelerate development via investments in both client and team member experiences, as well as industry-leading use of technology and analytics.
• Announcement of Dividend: The Board of the Company announced a cash dividend of USD 0.195 per common share, payable on August 1, 2022, to shareholders on record July 7, 2022.
  

Financial Highlights: Q2 FY22 Results:

• Reported Significant Increase in Revenue: The Company reported sales of USD 1.9 billion in Q2 FY22, up 26.7% year over year from USD 1.5 billion, with 7.5% organic growth and 19.2% through acquisitions.
• Robust Bottom-Line Performance: The company earned USD 48.8 million in net income, or USD 0.72 per diluted share in Q2 FY22, compared to USD 31.1 million in net income, or USD 0.46 per diluted share in Q2 FY21. The profitability of the segment on higher revenue and the lack of litigation reserve taken in the prior quarter drove the company's growth rate.

(Source: Company Filings)

• Balance Sheet Highlights: The Company had total debt of USD 1,335.7 million at the end of the quarter, including USD 162.4 million in standby letters of credit, for a total leverage ratio of 2.4x. The company has roughly USD 781 million in available liquidity, including USD 48.9 million in cash and cash equivalents.

FY 2022 Guidance:

Source: Company Filings

Key Risks:

• Macro-Economic Risk: Changes in general economic conditions, such as energy costs, government restrictions, or consumer preferences, might diminish demand for facility services, lowering profits and negatively impacting the financial status.
• Dependence on Big Clients: Maintaining current client connections is critical to corporate success. Adverse publicity resulting from an accident might damage a company's reputation, lead to contract cancellations or the inability to retain clients and expose the company to considerable liabilities.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Source: Analysis by Kalkine Group)

Stock Recommendation:

ABM’s stock price has fallen 15.47% in the past three months and is currently leaning towards the lower end of its 52-week range of USD 54.00 to USD 38.44. We have valued the stock using the EV/Sales multiple relative valuation methodology and arrived at a target price of USD 45.96.

In the present economic climate, ABM is well-positioned for expansion. A 27% year-over-year increase led to organic revenue growth in Aviation, fueled by rebounding consumer and business travel, and an 18% increase in Technical Solutions, driven by significant development in the company's e-mobility business.

Based on the consistent revenue cycle, high net income, liquidity, capital structure, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current market price of USD 38.22, down 1.76%, as of June 14, 2022, at 12:18 PM PDT.

1-Year Technical Price Chart (as of June 14, 2022, 12:18 PM PDT). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary

*CMP as on June 14, 2022 at 12:18 PM PDT 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.