AECOM's Infrastructure Stimulus Tailwinds Prompt Upgrade By Credit Suisse; Can Further Re-rate

  • Credit Suisse analyst Jamie Cook upgraded AECOM ACM from Neutral to Outperform and raised the price target from $95 to $98.
  • As a pure play in professional infrastructure services, the analyst believes ACM stands to benefit from secular tailwinds tied to infrastructure stimulus in the U.S. and globally. 
  • In the U.S., ACM expects multi-year tailwinds from Infrastructure Investment and Jobs Act to occur in 2023 and beyond. 
  • ACM will be one of the early beneficiaries, given its involvement in front-end engineering and design. 
  • Internationally, demand remains strong in Australia and Canada, and the long-term outlook is positive in Saudia Arabia and the U.K. despite near-term macro uncertainty.
  • ACM has exited lower returning markets and focused organic investments in the highest producing opportunities, including the advisory and program management businesses which expand the total addressable market for ACM and positions ACM as a low-risk business model. 
  • ACM has also invested in digital capabilities to change how it delivers its business. 
  • These efforts have led to higher win rates for the company in the 45-50% range and support accelerating organic growth and margin expansion FY23 and beyond.
  • ACM reiterated its FY24 targets. ACM also maintains a disciplined capital allocation strategy. 
  • Finally, ACM prides high earnings quality and consistently targets 75% unlevered FCF conversion of EBITDA through the cycle. 
  • The analyst believes ACM can further re-rate over time if it can grow EPS organically at a close to 20% CAGR while returning cash to shareholders via consistent share repo and dividends.
  • Price Action: ACM shares traded higher by 2.01% at $85.68 on the last check Thursday.
  • Photo Via Wikimedia Commons
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