On Mar 13, 2014, we issued an updated research report on
AECOM Technology Corporation
). The company reported strong first-quarter fiscal 2014 results,
which included a 2.78% positive surprise. Growth in the company's
core business as well as its joint ventures (JVs) aided the
AECOM has delivered positive earnings surprises in three of the
last four quarters, with an average beat of 3.39%.
Based on the impressive quarterly performance, the company raised
its outlook for fiscal 2014. The company now expects earnings per
share in the range of $2.50-$2.60 as compared with the prior
guidance of $2.35-$2.45. The Zacks Consensus Estimate for fiscal
2014 earnings is currently pegged at $2.57 per share, well above
the company's expectations.
AECOM's diversified portfolio comprises both designing and
construction services. The company's business has been doing well
in Europe, the Middle East and Asia. The AECOM Arabia JV also
performed impressively well in the reported quarter after the
company gained its control, having received the required
consolidation. Moreover, the company is expected to benefit from
recovery in the non-residential construction market across the
globe, especially in the U.S.
This Zacks Rank #2 (Buy) technical service provider has been
witnessing a steady improvement in its free cash flow, which
stood at $117 million at the end of fiscal first-quarter 2014,
surpassing the company's net income for the past seven quarters.
The company, hence, continues to expect cumulative free cash flow
to be between $1.3 billion and $1.8 billion from fiscal 2013 to
Furthermore, the company's backlogs increased 8% to $18.4 billion
while new contract wins amounted to $3.7 billion in the quarter.
Among other initiatives to strengthen its operations, AECOM has
been restructuring its Management Support Services (MSS) business
to make it more profitable. The company plans to shift from
higher-volume lower-margin international work to lower-volume
higher-margin work in the U.S. The resultant decrease in volume
is likely to impact the company's revenues and earnings until the
desired margin levels are achieved.
The company derives a considerable share of revenues from
government projects and hence, can be affected by changes in
government rules and regulations. Additionally, projects included
in the company's backlog are usually long-cycle in nature. As a
result, these are often subject to cancellation risks or delays
that could impact AECOM's operations and cash flows.
Stocks That Warrant a Look
Investors interested in this sector could also consider
Altra Industrial Motion Corp.
Quanta Services, Inc.
). All of these have the same Zacks Rank as AECOM.
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