This Business Support Provider Looks Seriously Undervalued
Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last week I wrote about Accenture, a tech consultancy that has been doing rather well over the last few years. After researching this article, I stumbled upon one of their competitors, which actually looks like an even more attractive bet at the moment. Aecom Technology (NYSE: ACM) is a provider of technical and management support services for governments and commercial clients worldwide. Aside from steadily growing earnings over the last five years, the stock appears priced at a very attractive valuation, which may give shareholders some further upside in years to come.
Earnings and Valuation
Aecom, with a market cap of $2.4 billion, has a TTM revenue of $8.3 billion, which is up from $6.2 billion in 2009 when the rest of the industry was taking a loss. EPS growth has led the industry every year since the company's IPO in 2007. While quarterly EPS has so far been missing the consensus in 2012, it seems as if expectations have been rather high for this midcap. Q4 2012 and full-year results are due on Nov. 13th. Earnings growth looks pretty solid to me at the moment. Compare this to competitor ABM (NYSE: ABM), which has been trailing the market in terms of both EPS and revenue growth for most of the past five years.
Moreover, the company is currently trading at a very attractive valuation. With a P/E of 9.4x and a forward P/E of only 8.4x earnings, the stock is trading at a significant discount to the 21.2x industry average. Aecom’s largest competitor by market cap, Accenture (NYSE: ACN), trades at 18.4 earnings.
Looking at price to book, the company is similarly inexpensive. Sitting at 0.94 to book, the stock is way under the industry average of 5.84, and certainly under Accenture’s huge 10.26. ABM trades at 18.7x earnings and 1.2 to book. Aecom has an acceptable LT debt to equity ratio of 49 and a decent return on equity of 11.2. Based on these valuations, Aecom looks cheap compared to its competitors, the sector, and the broader market.
Just like its main competitor Accenture, Aecom recently pulled in a number of high-profile contracts which should help secure the company’s EPS growth in the near future. One of these contracts is an $85 million deal in the Pacific region. Under the contract, named Comprehensive Long-Term Environmental Action Navy (CLEAN), Aecom will provide environmental technical and engineering services principally to Hawaii and Guam.
In other positive news, the company was awarded a design contract to expand Denver’s metro line earlier this month. The new commuter rail hub at Denver’s Union Station was also designed by Aecom, which contributed to the contract win, according to Aecom CEO John Dioniso. The value of this contract is as of yet undisclosed.
In summary, I believe Aecom Technology offers excellent value for money at the moment. The company has consistently been raising earnings as well as revenue since its IPO, and looks set for further growth in the future. Currently trading at a significant discount to its competitors and the broader market, the stock is actually quite a bargain. With a number of recent high-profile government contracts, the company looks like a solid bet in the tech sector.
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