Struggling Office Market Can Curb ABM's B&I Segment Growth: Analyst

Truist Securities analyst Jasper Bibb initiated ABM Industries Inc ABM with a Hold rating with a price target of $43.

The analyst sees ABM's office exposure (~40% of revenue) as the primary concern, hitting B&I segment growth, and expects the protracted downturn as a risk to FY25 estimates.

Bibb says achieving the consensus estimate of ~9% EPS growth in FY25 would require the office market trends to stabilize over the next 12 months.  

The analyst estimates ABM to generate adj. FCF of $4.84/share in CY24E, implying shares currently trade at a compelling 12% FCF yield. 

The analyst notes that ABM has made significant progress in improving adj. EBITDA margins to 6.5% in FY23 from 4.2% in FY15.

The analyst says that the variable labor model, labor productivity gains, and overhead cost savings (led by the ELEVATE program) indicate margins for FY25 of only 6.2% 6.

Bibb estimates EPS of $3.28 (vs. consensus of $3.30) for FY24 and $3.55 (vs. street view of $3.61) for FY25. 

In September, ABM reported Q3 FY23 revenue growth of 3.4% Y/Y to $2.028 billion, beating the consensus of $2.01 billion, and adjusted EPS of $0.79 missed the consensus of $0.89.

Price Action: ABM shares are trading lower by 0.41% at $39.83 on the last check Monday.