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Monday August 16, 2010
AECOM (ACM): Top bet in global infrastructure
by Geoffrey Seiler, editor BullMarket.com  Recommended List engineering and construction selection AECOM Technologies (ACM) turned in another solid quarter -- but the big news is the company's recent acquisition spree. While some companies have been hording cash, AECOM is helping invest in its future. Its three recent acquisitions should help improve its margins in the years ahead and bolster both the top and bottom lines. The company recently reported its fiscal third-quarter results this morning, topping expectations for profit but falling a bit short on revenue. The company reaffirmed its full-year guidance. AECOM said it earned $65 million for the quarter ended June 30th, or 56 cents per share, up 30% from year-ago net income of $50 million, or 45 cents per share. Wall Street analysts were projecting EPS of 55 cents. Operating income was up 26% to $93 million. 
Revenue totaled $1.6 million, 6% above the year-ago period. Analysts were looking for $1.76 billion in revenues. The company reported its project backlog totaled $9.7 billion at the end of the quarter, a 4% increase year over year, but down slightly from $9.9 billion last quarter. The company reiterated its full-year profit view of $1.97-$2.05 per share. The Wall Street analyst consensus is $2.04. AECOM also announced two acquisitions. It said it would purchase McNeil Technologies from private equity firm Veritas Capital for approximately $355 million in cash. McNeil provides mission-critical services to U.S. federal government clients such as the Department of Defense and Department of Homeland Security. The firm generated $245 million in revenue last year. AECOM said the deal will be accretive to cash earnings in FY2011, and neutral on a GAAP basis. AECOM also announced that it was buying cost and project management services firm Davis Langdon for approximately $324 million in cash (80%) and stock (20%). The firm, which generated $430 million in 2009 revenue, has a strong global presence, including in Africa, Australia and New Zealand, Europe, the Middle East, and the United States. The deal is expected to be accretive to FY2011 cash earnings, and neutral on a GAAP basis. The Davis Langdon acquisition immediately turns the company into a major global player in the low-risk, high-margin Construction Management/Project Management (CM/PM) business. The one real negative in the quarter was that AECOM's backlog fell sequentially for the second-straight quarter, but the declines have been tiny. We continue to think AECOM is one of the best and safest ways to play the global infrastructure buildout given its absence of construction risk. We rate the stock a "Buy" with a target of $34, which is a 15x multiple on 2011 estimates. Learn more about this financial newsletter at Geoffrey Seiler's BullMarket.com. |
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