Much attention has been given to the most recent proposed stimulus plan by the Obama Administration. One of the companies that should directly benefit from this sweeping measure is AECOM Technology Corporation (ACM). The Los Angeles-based company is a leading provider of engineering, design and consulting services and they specialize in infrastructure projects.
AECOM (pronounced A-E-Com) recently released its 2008 earnings report for the fiscal year ending September 30. The company earned $1.40 per share which includes EPS of $0.40 for the fourth quarter. Q4 earnings were up 38% over last year while the full year reflected earnings growth of 33%. Looking towards 2009, the company expects further growth with earnings in the range of $1.60-1.70 per share. While some may dismiss this as a speculative assessment, the fact that ACM is sitting on a backlog of $8.6 billion dollars worth of future contracts helps to ensure stability to its future earnings.
Morgan Stanley issued a report on December 9th stating that even without the new stimulus package, the future is bright for this company. With many state and local governments placing a greater priority on infrastructure spending than on higher profile social programs, additional business for ACM should continue to flow in. Since ACM is ranked #1 in Transportation, Architecture and Pure Design, they stand heads and shoulders above competition and should be able to competitively bid for many new projects.
Although there are few hard details accompanying the stimulus plan, it appears infrastructure and energy will be a key priority. Morgan Stanley expects this package could include $150 billion for highways, transit, environmental and rail projects. On top of that, Obama has mentioned significant interest in creating “green jobs” surrounding investment in renewable and clean energy initiatives. All of these should present opportunities for ACM to develop new business.
One of the challenges for infrastructure companies is access to capital. Since many projects require significant investment, it is important for providers to have access to capital. ACM has done a good job of keeping its balance sheet attractive with debt of just $391 million and cash of $271 million. There was some concern that much of the company’s cash was tied up in Auction Rate Securities which became illiquid for a period. However, ACM announced that they were able to sell these securities at par and now have access to those funds. In addition, there is $300 million of unused capacity in bank facilities which could fund projects as well as acquisitions.
The stock has had a significant run over the past months and is now trading at about 18 times next year’s expected earnings. While this is a higher multiple than many growth stocks currently hold, I believe the premium is justified given the strong visibility into future quarters, and the expansion prospects with the new initiatives. The best approach may be to average some capital into the name over the next several weeks to spread out a purchase price. At any rate, I expect much higher prices in the next 12 to 18 months.
Disclosure: Author does not have a position in ACM