AECOM Technology
Solomon's Select, by Mark Robertson, Managing Partner April 1st, 2011
ACM has emerged as a world leader in the realm of consulting, design and construction/project management.
If they build it, we will drive on it … and that includes airport landing strips, mass transit, high-speed rail and water treatment plants. Infrastructure matters and AECOM Technology (ACM) has emerged as a world leader in the realm of consulting, design and construction/project management.
The company is a leading global provider of professional technical and management support services to a broad range of markets, including transportation, facilities, environmental, energy, water and government. Most of those things rank pretty high on Maslow’s hierarchy of needs.
Growth
Value Line has a 3-5 year sales growth forecast of 8%. Morningstar believes that “AECOM is positioned to benefit from stimulus-driven infrastructure spending around the world” and expects that long-term growth will “trend down” to around 10% per year. We’ve used 12% based on regression analysis of recent years and forecasts for 2011-2015.
AECOM Technology (ACM): Equity Analysis Guide. The projected annual return (PAR) for ACM is approximately 15%. Buy below $29.
Profitability
The trailing 5-year average net margin has been 2.7%. This has probably been impacted by the Great Recession as the relatively young company gets on its feet. Value Line has a 3-5 year forecast of 4.1% for projected net margin, reflecting above-average expectations vs. AECOM’s industry. Morningstar believes that “operating margins” have been steady and expects that margins can remain in historical ranges. The projected net margin used in the accompanying Equity Analysis Guide is 4.1% in line with VL estimates.
Valuation
Morningstar’s fair value of $26 implies a “fair P/E” of approximately 12-13×. S&P concurs with its fair value of $33.2. (15-16x) Value Line has a 3-5 year projected average P/E of 18×. Based on this consensus and industry analysis, we’ve used 14×.
AECOM Technology has a capital structure that includes 35% debt (as % of total capital) with an effective interest rate of 5.47%. Value Line gives the company a B++ financial strength rating, contributing to an excellent quality rating at MANIFEST of 74.7. Morningstar rates ACM a “hold”.
AECOM is helping to rebuild the World Trade Center, has been selected for engineering and logistics for the London Olympics in 2012 in addition to high-speed rail and clean water & environmental projects. They’re clearly builders.
AECOM Technology (ACM): Chronicle. The abbreviated return forecast track record, reflecting the short public trading history for the company, is at all-time highs on the strength of fundamentals and a flat stock price.
Mark Robertson
Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management focusing on strategic long term investors.