ABM Industries (ABM) is a service company that provides fully integrated facility solutions, primarily in the U.S., explains Ben Reynolds, editor of Sure Dividend's Top 10 Dividend Elite.
The company 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 was founded in 1909, employs over 114,000 people globally.
ABM reported third-quarter earnings on September 8th, 2021 and results handily beat expectations on both the top and bottom lines. Total revenue was $1.5 billion, up 11% year-over-year. The third quarter represented a strong recovery from pandemic-induced lower revenue for parts of 2020, as ABM’s customers turned workers away from their offices.
Earnings-per-share came to $0.90 during the quarter, which was nine cents ahead of consensus estimates. This was largely the result of better-than-expected revenue, but also the lasting impact of cost cuts that were implemented in 2020.
ABM announced it would acquire Able Services, a janitorial services and engineering company, for a total consideration of $830 million. Able produces revenue of $1.1 billion annually. ABM management believes the acquisition, once it closes, will be immediately accretive. Following third quarter results, we now expect $3.50 in earnings-per-share for 2021.
Safety & Dividend Risk Analysis
ABM generally performs quite well during recessions, which is why it has been able to boost its dividend for more than 50 years consecutively. 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 22% of earnings, 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, roughly in line with historical performances.
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.
Indeed, ABM looks well-priced today at 13.2 times this year’s projected earnings, as that compares very favorably to our fair value estimate of 17.5 times earnings. In total, we see 12.1% total annual returns in the coming years from growth, valuation expansion, and yield.
