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ABM Industries Poised to Gain From Portfolio Realignment

On Mar 11, we updated the research report on ABM Industries Incorporated ABM.

Business services provider ABM has developed a platform to deliver an end-to-end service model to clients by realigning its operational structure to an on-site, mobile and on-demand market- based structure. This realignment has improved its long-term growth prospects and provides higher margin opportunities by enabling it to better deliver end-to-end services to clients across urban, suburban and rural areas. The company expects to extend its global footprint further and strengthen its position in existing markets through both inorganic and organic growth across the industry verticals.

The company has embarked on a Vision 2020 Plan that outlines its long-term vision for the next five years and hinges on three primary phases, the first of which is aimed to increase the efficiency of the company through diligent execution of the operating plan and stringent cost-reduction activities. The second phase will focus on driving growth across the realigned verticals through effective realization of the cost savings from procurement, account management and other organizational changes. The final phase of the transformation will involve initiatives to accelerate growth from the vertical alignment and account planning systems with a continuous focus on additional cost savings. ABM is currently focusing on the second phase of the plan. These systematic and strategic plan of actions are likely to help the company fuel growth.

ABM has a healthy pipeline of future businesses with strength seen particularly in its government business. The company’s comprehensive, strategic and transformative initiatives are focused on driving sustainable profitability by effectively allocating resources to higher margin services and business verticals with a strong competitive edge. Management also reiterated that corporate restructuring initiatives are well on track to yield sustained long-term growth.

ABM raised guidance for fiscal 2018 due to the favorable impact of the U.S. Tax Cuts and Jobs Act. GAAP income from continuing operations is expected to be within $1.88 and $1.98 per share compared with earlier range of $1.33-$1.43. Adjusted income from continuing operations is anticipated to be in the range of $2.00-$2.10, up from $1.70-$1.80 per share expected earlier.

However, ABM’s stock has lost 9.3%, underperforming the industry’s 3% gain on an average in the last three months. ABM has a significant presence in the U.K. and as the European economy is highly unpredictable post the Brexit referendum, it becomes difficult for the company to generate higher revenues and reduce costs. The company is likely to be stifled by the renegotiated deals and restrictions imposed on trade with other European Union members. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering the productivity of the company. Strong competitive pressures could also limit the company’s success rate in bidding for profitable businesses and its ability to increase prices in accordance with the rising costs.

 


 

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Nevertheless, we remain impressed with the long-term growth potential of this Zacks Rank #2 (Buy) stock. Some other top-ranked stocks in the industry worth mentioning are CBIZ, Inc. CBZ, Exponent, Inc. EXPO and ServiceMaster Global Holdings, Inc. SERV, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CBIZ has trumped estimates thrice in the trailing four quarters with an average positive earnings surprise of 75.1%.

Exponent has topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 12.4%.

ServiceMaster Global surpassed estimates twice in the trailing four quarters with an average positive earnings surprise of 3%.

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ABM Industries Incorporated (ABM) : Free Stock Analysis Report
 
ServiceMaster Global Holdings, Inc. (SERV) : Free Stock Analysis Report
 
CBIZ, Inc. (CBZ) : Free Stock Analysis Report
 
Exponent, Inc. (EXPO) : Free Stock Analysis Report
 
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