Analyst has recently weighed in on ABM Industries, Inc. (NYSE:ABM), issuing notes to Andrew J. Wittmann, of Baird Equity Research Facility Services remains their Outperform rating on the stock on September 03, 2015 with a $35.00 price target, or 16.67% upside to the last closing price.
F3Q15 earnings presented a “kitchen sink” quarter, with new management announcing key tenets of the company’s comprehensive strategic review, but also unwinding previous margin-enhancing accounting estimates (to put it nicely) inherited from the prior management team. Put differently, new management unwound an under-accrual of insurance costs by prior management which inflated prior years’ earnings. We commend new management for making the right decision and establishing solid transparency, despite the 60 bps or ~$30 million hit to EBITDA which came with unwinding the prior team’s process. Over the long term, we believe such a decision reflects positively on new management and helps instill trust which is key to any turnaround-led story.
For long-term holders, the quarter should help fundamentally reset expectations, setting a basis for measurable operational improvement with increased transparency and a clearer vision of ultimate financial and operational targets. To wit, while our estimates are lower (by ~20% from pre-earnings levels in F2016-F2017), growth tenants are preserved, with a double-digit growth profile underpinned by low-mid single-digit revenue growth, modest margin expansion, and a committed buyback program (new $200M buyback authorization in place with explicit commitment to offset share creep and tacit desire to increase steady-state leverage levels, closer to 2.5x EBITDA from~1.5x today-or offering roughly $200 million of incremental capital capacity).
Specifically, management now sees a three-pronged structural overhaul of the company, with Phase 1 (2015-2016) focused on organization realignment, leverage of shared services and procurement, and seeking strategic alternatives for the sub-scale Security segment. Phase 2 (2016-2017) will see further actions taken to invest in key capabilities and in developing verticalbased growth and margin acceleration plans. Finally, Phase 3 (2017-2020+) will see the organization better penetrate higher-margin technical service markets now (and potentially later) addressable by ABM, providing sources of differentiation and, importantly, underlying margin support. Across all phases, we see ABM transitioning from today’s more silo-ed go-to-market approach (organized around service offerings — e.g., “Janitorial” or “Parking, etc.) to a more fully integrated approach (focused on end market verticals, such as business & industry, aviation, education, healthcare, government and high-tech). This strategy seems to have merit and we expect additional elaboration at the company’s upcoming Analyst Day in October, a potential positive catalyst.
also added ‘’Our revised $35/share price target balances these opportunities, putting a premium on higher levels of financial achievement, supporting a price target near the high end of the above-described range and assuming 12.2 our FTM adjusted EBITDA estimate, at a premium to the company’s 10- year average of 8.6x EBITDA, recognizing both today’s improved economic backdrop but also, importantly, the latent opportunity that exists at higher levels of performance, discounted by a probability-weighted approach to achievement.’’
ABM Industries, Inc. (NYSE:ABM) is a leading provider of facility solutions with revenues of approximately $5 billion and 120,000 employees in over 300 offices deployed throughout the United States and various international locations. ABM’s service capabilities include electrical & lighting, energy solutions, facilities engineering, HVAC & mechanical, janitorial, landscape & turf, parking and security, provided through stand-alone or integrated solutions. ABM provides custom facility solutions in urban, suburban and rural areas to properties of all sizes — from schools and bank branches to the largest and most complex facilities, such as airports, hospitals and manufacturing plants. ABM Industries Incorporated, which operates through its subsidiaries, was founded in 1909.
Oct 05, 2015 ABM Industries, Inc. (NYSE:ABM) a leading provider of facility solutions, announced today an extension of its contract as the official cleaning services partner for the Mercedes-Benz Super dome, the home of the National Football League’s (NFL) New Orleans Saints. In addition, ABM’s contract as the official cleaning services partner of Smoothie King Centre, the home of the National Basketball Association’s (NBA) New Orleans Pelicans, was also extended. SMG, a leading worldwide venue management group, manages operations at each venue.