On Friday, Truist Securities updated its outlook on AECOM Technology (NYSE:ACM), raising the price target to $119 from the previous $108 while keeping a Buy rating on the stock. The firm's stance is based on the belief that AECOM has become a higher quality, return-focused company under its current management. The strategy and execution track record of AECOM is recognized as well-defined and consistent.
The analyst from Truist Securities highlighted AECOM's potential to sustain 5-8% organic growth, propelled by the Infrastructure Investment and Jobs Act (IIJA) and investments to expand in strategic areas such as program management and water. AECOM's history of delivering above-average organic growth and improving margins is noted, with an expectation of at least another 140 basis points increase in margins over the next two years, and potentially more thereafter.
The report also points to AECOM's strong cash generation, with an emphasis on free cash flow conversion exceeding 100%. The majority of this cash is returned to shareholders, barring the amount reinvested organically. The analyst expressed confidence that AECOM could continue to achieve double-digit growth in earnings per share (EPS), driven by initiatives to fuel organic growth, enhance margins, and repurchase stock, all while maintaining low risk.
The new price target of $119 is derived from an average of two valuation methods: 14 times the firm's fiscal year 2025 adjusted EBITDA estimate of $1.203 billion and 24 times the 2025 EPS estimate of $4.95. This revised target reflects the firm's positive outlook on AECOM's financial performance and strategic initiatives.
In other recent news, infrastructure consulting firm AECOM has been involved in a series of significant projects. AECOM reported an 8% increase in its third-quarter net service revenue, leading to an upward adjustment of earnings guidance for the second consecutive quarter. The company anticipates a 21% boost in adjusted earnings per share for fiscal year 2024.
In terms of contracts, AECOM has been selected to design the first phase of the Capital Line South Light Rail Transit Extension project in Edmonton, Alberta. The firm also secured a role in managing improvements for the San Diego International Airport and was awarded a contract by the New York Power Authority to manage energy transition projects. AECOM has also been selected for LA's zero-emission bus initiative and Wessex Water's Capital Delivery Framework in South West England.
RBC Capital and Citi maintained positive ratings on AECOM's stock, with RBC Capital upholding an Outperform rating and Citi reiterating a Buy rating. Both firms highlighted AECOM's potential for long-term earnings visibility and strong cash flow generation.
InvestingPro Insights
AECOM's recent performance and financial metrics align well with Truist Securities' optimistic outlook. According to InvestingPro data, AECOM's revenue growth stands at 13.43% for the last twelve months as of Q3 2024, supporting the analyst's expectation of sustained organic growth. The company's P/E Ratio (Adjusted) of 23.76 and PEG Ratio of 0.4 suggest that the stock may be undervalued relative to its growth prospects, potentially justifying the increased price target.
InvestingPro Tips highlight that AECOM has raised its dividend for 3 consecutive years, indicating a commitment to returning value to shareholders, which aligns with the analyst's note on strong cash generation and shareholder returns. Additionally, the tip that AECOM is a "Prominent player in the Construction & Engineering industry" reinforces its position to benefit from infrastructure investments mentioned in the article.
For investors seeking a deeper understanding of AECOM's potential, InvestingPro offers 13 additional tips, providing a comprehensive view of the company's financial health and market position.
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