Construction Stocks

Aecom Valuation – July 2018 $ACM

Company Profile (excerpt from Reuters): AECOM, incorporated on January 31, 1980, is engaged in designing, building, financing and operating infrastructure assets for governments, businesses and organizations. The Company’s segments include design and consulting services (DCS), construction services (CS) and management services (MS). Its DCS segment is engaged in planning, consulting, architectural and engineering design services to commercial and government clients in major end markets, such as transportation, facilities, environmental, energy, water and government. Its CS segment is engaged in construction services, including building construction and energy, infrastructure and industrial construction, primarily in the Americas. Its MS segment is engaged in programing and facilitating management and maintenance, training, logistics, consulting, technical assistance, and systems integration and information technology services, primarily for agencies of the United States government and other national governments.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ACM – July 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,242,272,720 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.23 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -34.86% Fail
6. Moderate PEmg Ratio PEmg < 20 29.49 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.23 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.23 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.98 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.12
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $16.22
MG Value based on 0% Growth $9.51
Market Implied Growth Rate 10.50%
Current Price $32.99
% of Intrinsic Value N/A

Aecom does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.75 in 2014 to an estimated $1.12 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.5% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Aecom revealed the company was trading above its Graham Number of $26.5. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 29.49, which was above the industry average of 24.98. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-21.5.

Aecom scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$21.50
Graham Number $26.50
PEmg 29.49
Current Ratio 1.23
PB Ratio 1.23
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $6,923,960,000
Total Current Liabilities $5,641,841,000
Long-Term Debt $3,814,976,000
Total Assets $14,617,332,000
Intangible Assets $6,310,772,000
Total Liabilities $10,352,707,000
Shares Outstanding (Diluted Average) 159,495,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.23
Sep2017 $2.13
Sep2016 $0.62
Sep2015 -$1.04
Sep2014 $2.33
Sep2013 $2.35
Sep2012 -$0.52
Sep2011 $2.33
Sep2010 $2.05
Sep2009 $1.73
Sep2008 $1.41
Sep2007 $1.15
Sep2006 $0.74
Sep2005 $1.68
Sep2004 $1.57
Sep2003 $0.65

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.12
Sep2017 $1.13
Sep2016 $0.67
Sep2015 $0.83
Sep2014 $1.75
Sep2013 $1.50
Sep2012 $1.18
Sep2011 $1.93
Sep2010 $1.63
Sep2009 $1.39
Sep2008 $1.25
Sep2007 $1.17
Sep2006 $1.10
Sep2005 $1.11
Sep2004 $0.70
Sep2003 $0.22

Recommended Reading:

Other ModernGraham posts about the company

Aecom Valuation – December 2016 $ACM
Aecom Valuation – November 2016 $ACM
5 Speculative and Overvalued Companies to Avoid – August 2015
Aecom Analysis – Initial Coverage $ACM

Other ModernGraham posts about related companies

Lowe’s Companies Inc Valuation – June 2018 $LOW
Acuity Brands Inc Valuation – June 2018 $AYI
Quanta Services Inc Valuation – May 2018 $PWR
Mohawk Industries Inc Valuation – May 2018 $MHK
Jacobs Engineering Group Inc Valuation – May 2018 $JEC
Masco Corp Valuation – May 2018 $MAS
D.R. Horton Inc Valuation – May 2018 $DHI
Martin Marietta Materials Inc Valuation – May 2018 $MLM
Fluor Corporation Valuation – April 2018 $FLR
Lennar Corp Valuation – April 2018 $LEN

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top