ABM Industries (ABM) — founded in 1909 — is a service company that provides fully integrated facility solutions, primarily in the U.S., notes Ben Reynolds, editor of Top 10 Dividend Elite Service.
The company, which employs 124,000 people globally, serves a wide variety of industries and has a deep book of customers with janitorial services, facilities engineering, parking management, landscaping and grounds management, mechanical and electrical services, and vehicle maintenance.
ABM reported third-quarter earnings on September 9th, 2022, and results were better than expected on both revenue and profits. Adjusted earnings-per-share came to $0.94 cents, which was $0.04 better than expected. Revenue soared 27% year-over-year to $1.9 billion, which beat estimates by $50 million.
The revenue gain was driven by 7.4% organic growth, in addition to 19.7% growth from acquisitions. The company said recovering consumer and business travel led to a 21.3% year-over-year gain in Aviation revenue.
The Technical Solutions segment also saw revenue grow by 9.3% due to strength in the e-mobility business. Adjusted EBITDA margin was 6.6% of revenue, down from 7.7% a year ago, which reflected a change in service mix along with increased costs.
Leadership updated their full year 2022 guidance, now expecting adjusted EPS to be $3.60 to $3.70, for a midpoint of $3.65 per share.
Safety & Dividend Risk Analysis
ABM generally performs quite well during recessions, which is why it has been able to increase its dividend for 54 consecutive years. ABM saw strong earnings growth in 2020, during a very sharp recession, so we don’t see any meaningful recession risk for ABM going forward.
ABM’s payout ratio is just 21% of earnings for this year, meaning the dividend is extremely safe and has many years of potential growth ahead, even if we do not account for forecasted earnings growth.
Growth, Value & Expected Total Return Analysis
ABM’s average growth rate during the last decade is about 5% annually, and the company hasn’t posted a year-over-year earnings decline during that period, which is quite impressive.
We see organic growth and acquisitions combining for a 5% average annual growth rate in the coming years. We note that growth may be slightly higher than that for the near term given the size of the Able acquisition.
ABM’s valuation has moved in a very wide range over the past decade, trading as high as a mid-20s price-to-earnings ratio, down to a low of about half of that.
ABM looks well priced today at 12.2 times this year’s projected earnings, as that compares favorably to our fair value estimate of 16 times earnings. In total, we forecast 12.0% total annual returns in the coming years from earnings growth, valuation expansion, and a 1.8% yield.
