Buy Post Earnings Weakness In ABM Industries, But Not Yet

ABM Plunges On Unexpected Spending Plans

Shares of ABM Industries, Incorporated NYSE: ABM are down nearly 10% in the wake of the Q4 earnings report and there are more reasons than one. Ultimately, the news is good but was not well received by the market. The Q4 results themselves were fine, it is the guidance and spending plans that have the market on edge. 

ABM Industries management announced a new spending plan called Elevate that is intended to spur growth, widen margins, and improve the customer experience at the same time. The plans call for $150 to $175 million in spending with the first $80 million slated for this year. This is, of course, on top of the expenses related to a recent acquisition and is offsetting any synergies that will arise. 

ABM Reports Strong, Guides Weak 

ABM Industries had a good quarter with growth in most segments offsetting weakness in one. The company reported $1.69 billion in consolidated revenue which is good for a gain of 14.2% over last year. The revenue is driven by organic and acquisitional strength and beat the Marketbeat.com consensus as well. The revenue beat the consensus by 430 basis points and we are expecting this strength to continue. 

On a core basis, organic sales are up 7.4% and bolstered by a 6.8% acquisitional gain. On a segment basis, Aviation grew by 43% on strength in commercial air travel and was followed by a 21% increase in Technology Solutions, a 17% increase in Business and Industry, and offset by a decline in Eduction. Technology and Manufacturing were essentially flat. 

Moving down, the company reported some margin expansion on an adjusted basis but the GAAP margin was not so fortunate. The company’s GAAP earnings fell on a YOY basis and missed the consensus by $0.28 on the impact of inflation and acquisitional costs. The adjusted EPS of $0.85 is up by $0.16 YOY, however, and beat the consensus by $0.04. 

Turning to the guidance, the company issued guidance for the coming fiscal year that is favorable in terms of growth but fell short of the Marketbeat.com consensus estimate. The $3.30 to $3.55 in adjusted earnings is a wide range and the top end only beat consensus by a penny. In this light, there is a chance for outperformance but forecasts assume a decline in COVID restrictions that may not come. 

ABM Industries Dividend Looks Safe 

ABM Industries pays a 1.65% dividend yield that looks about as safe as a stock market dividend can be. The company is only paying out 22% of its earnings and has a strong balance sheet so there is plenty of room in the numbers to continue paying. The company has also been raising the dividend on a consecutive annual basis for more than 3 decades and we see no reason for that to end either. We don’t expect the pace of dividend increase to increase but we do expect the regular distribution increases to continue. 

The Technical Outlook: ABM Industries Sets New Low 

Shares of ABM Industries fell nearly 10% in the wake of the Q4 report and broke through support to set a new 10 month low. This move could lead to a much larger decline and this is indicated in the MACD and stochastic. Both the indicators are firing bearish signals that could lead this market down to the $37.50 range or lower before it’s all said and done. 

Separately, Maxim Group restated a "hold" rating on shares of ABM Industries in a research report on Friday, August 27th. Two investment analysts have rated the stock with a hold rating and three have given a buy rating to the stock. Based on data from MarketBeat, the stock has a consensus rating of "Buy" and an average price target of $52.67.

The business's 50 day moving average is $46.16 and its 200 day moving average is $46.42. The company has a market capitalization of $2.71 billion, a price-to-earnings ratio of 19.45 and a beta of 1.35. The company has a debt-to-equity ratio of 0.39, a quick ratio of 1.45 and a current ratio of 1.45.

In other ABM Industries news, COO Rene Jacobsen sold 3,092 shares of the company's stock in a transaction dated Monday, September 20th. The shares were sold at an average price of $45.00, for a total value of $139,140.00. The transaction was disclosed in a legal filing with the SEC, which is accessible through this hyperlink. Also, Director Linda Chavez sold 2,532 shares of the company's stock in a transaction dated Monday, October 4th. The shares were sold at an average price of $47.01, for a total transaction of $119,029.32. The disclosure for this sale can be found here. Insiders own 0.47% of the company's stock.

ABM Industries Company Profile (NYSE:ABM)

ABM Industries, Inc engages in the provision of facility services for commercial, industrial, and institutional buildings. It operates through the following segments: Business & Industry, Aviation, Technology & Manufacturing, Education, and Technical Solutions. The Business & Industry segment encompasses janitorial, facilities engineering, and parking services for commercial real estate properties and sports and entertainment venues.

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