At the end of the second quarter, this stock was held by 23 hedge funds—an all-time high—and a great momentum indicator.
ABM Industries Incorporated (ABM)
From Sure Dividend Newsletter
ABM Industries is a service company that provides fully integrated facility solutions, primarily in the U.S. The company serves a wide variety of industries and has a deep book of customers with janitorial services, facilities engineering, parking management, landscaping and grounds management, mechanical and electrical services, and vehicle maintenance.
ABM was founded in 1909, employs more than 114,000 people globally, and trades with a market capitalization of $3.1 billion.
ABM reported third-quarter earnings on September 8th, 2021 and results handily beat expectations on both the top and bottom lines. Total revenue was $1.5 billion, up 11% year-over-year. The third quarter represented a strong recovery from pandemic-induced lower revenue for parts of 2020, when ABM’s customers turned workers away from their offices. ABM’s earnings-per-share came to $0.90 during the quarter, $0.09 ahead of consensus estimates. This was largely the result of better-than-expected revenue, but also the lasting impact of cost cuts implemented in 2020. ABM reduced its headcount after the pandemic, and we expect new hiring to be measured, which should help margins ahead.
ABM announced it would acquire Able Services, a janitorial services and engineering company, for a total consideration of $830 million. ABM management believes the acquisition, once it closes, will be immediately accretive.
Following third-quarter results, we expect $3.50 in earnings-per-share for 2021.
ABM’s competitive advantage is one of size and scale. The company is massive in the world of facilities services, due in no small part to its more than one hundred years in business. ABM has also enhanced its organic growth over the years with acquisitions, eliminating competitors and further boosting its own size. This affords ABM the ability to offer more services to more customers at reasonable costs, creating a positive cycle of higher organic revenue.
ABM generally performs quite well during recessions, which is why it has been able to boost its dividend for more than 50 years consecutively. ABM saw strong earnings growth in 2020, during a very sharp recession, so we don’t see any meaningful recession risk for ABM going forward.
ABM’s average growth rate during the last decade is about 5% annually, and the company hasn’t posted a year-over-year earnings decline during that period, which is quite impressive. We see organic growth and acquisitions combining for a 5% average annual growth rate in the coming years, roughly in line with historical performances.
ABM’s valuation has moved in a very wide range over the past decade, trading as high as a mid-20s price-to-earnings ratio, down to a low of about half of that, where it trades today. Indeed, ABM looks well-priced today at 13.2 times this year’s projected earnings, as that compares very favorably to our fair value estimate of 17.5 times earnings. Due to this, we see a sizable 5.7% annual tailwind to total returns in the coming years. In total, we see robust 12.1% total annual returns in the coming years.
Ben Reynolds, Eli Inkrot, Josh Arnold & Nate Parsh, Sure Dividend Newsletter, suredividend.com, support@suredividend.com, 800-531-0465