Baird Calls ABM Industries An Attractive Long-Term Idea

ABM Industries, Inc. ABM reported beat results for FQ3:16 while raising the guidance.

Baird’s Andrew J. Wittmann maintains an Outperform rating on the company, with a price target of $44.

Wittmann believes the stock is reasonably valued and continues to be an attractive longer term idea.

Beat Quarter

“F3Q16 earnings furthered management-led/margin-led turnaround thesis, with margins up strongly, benefiting from tax gain/delayed reinvestment but also, importantly, cost actions ahead of expectations,” the analyst mentioned.

Related Link: Baird Is Positive On ABM Industries Into Earnings, Sees Long-Term Growth

Although there could be potential for a slowdown in the pace of margin expansion in F2017, Wittmann expressed confidence in ABM Industries’ longer term plan, driven by solid execution.

The company reported EPS of $0.54, ahead of the consensus, driven by tax gain and deferred P&L reinvestments, supported by marginally better-than-anticipated cost actions.

Outlook For 2017

Management raised the EPS guidance by $0.12, driven by robust underlying gains in the AirServ, ABES and janitorial businesses.

“Additional Vision 2020 net cost savings (ostensibly targeted at $35 million–40 million but running ahead of plan) in F2017 will build off of F2016's recognized savings of ~$22 million, continuing trajectory,” Wittmann stated.

The analyst expects the company to see a $010 EPS tailwind in F2017, although the reinvestment of $9-11 million in strategic personnel and IT systems, planned now for F2018, is expected to impact margin gains during the year.

At time of writing, ABM was trading at $39.36, down 2.62 percent on the day.

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