In May, I participated in the IPO of a little known company named AECom Technology (NYSE:ACM). Unfortunately I got a very small allocation of only 500 shares, but that position has risen 40% over the few months since the deal. Although I haven’t found a spot where I am comfortable adding to this position, I am intrigued with the company and think at some point it will make up a more substantial part of my portfolio.
ACM is much less of a technology company than its name implies. The company belongs to the building / heavy construction sector and its business revolves around providing engineering and consulting for major building projects around the world. AECom actually stands for “Architectural Engineering, Consulting, Operations and Maintenance.” The focus for ACM revolves around three distinct groups of projects: 1) Transportation, 2) Facilities, 3) Environmental. Many of its projects are large high profile contracts such as building the new World Trade Center PATH terminal, or internationally, the Etihad Towers in the United Arab Emirates.
While the company has only been public for a few months, its track record goes back years and years. Over the past 10 years, the company has grown revenue by roughly 20%, although about half of that growth has been through acquisitions. With the industry fragmented and over 500 companies making up the top 2/3 of the business, there have been many attractive takeover targets for the company to pursue. In fact, when stepping into a new international market, ACM prefers to acquire an existing company in that area rather than opening a new organic branch. This allows them to participate more quickly as the acquired target likely already has skills as well as a network of contacts within that local market.
At this point ACM receives over 40% of its revenue from markets outside the United States. The firm is concentrating its growth plans in quickly developing economies such as Canada, Australia, United Arab Emirates and of course China. The weakness in the dollar is actually helpful for this business as international profits translate into larger dollar earnings per share. The diversification in types of projects as well as geographical areas should insulate the company from weakness in individual areas.
Analysts estimate the company will grow earnings sharply this year and then experience more moderate growth next year. Often, analysts do not include potential acquisitions in their estimates so if the company continues to find accretive deals to put capital into, these estimates are likely to prove conservative. The recent IPO should give the company more flexibility to pursue these deals and the managements history of digging up attractive opportunities will likely continue.
While I have not found an attractive spot to add to my small initial position, I will be keeping this name on the radar list and am excited about the fundamental prospects of the company. Other names in the group are performing well, and since ACM has been public only a short time, it is likely that institutional investors have largely overlooked it up to this point. Watch for volume to pick up on days the stock moves up as your tell that these institutions are plowing money into the name.
Disclosure: Author has a position in ACM