NEW YORK (TheStreet) -- Shares of AECOM (ACM - Get Report) are down 0.55% to $28.86 in early morning trading Tuesday despite Credit Suisse's initiated coverage with an "outperform" rating and a price target of $35.
AECOM is a provider of professional technical and management support services for commercial and government clients worldwide.
After its acquisition of URS in October 2014, AECOM sits as the second largest public E&C company in the industry, Credit Suisse analysts said.
In addition, the firm said that AECOM offers investors above-average upside potential at lower risk, with earnings/margin expansion driven by cost cutting, deleveraging, and the potential for top-line upside as the most levered way to play U.S. infrastructure spend.
"Over the next two years, AECOM will look to take out $275 million in costs assocated with the [URS] deal, already 10% ahead of initial expectations," Credit Suisse noted.
Both URS and AECOM consistently generated free cash flow as a percent of net income above 100%, analysts said, adding that the company could generate over $2 billion in free cash flow, or $600-$800 million per year, over a three year time frame.
"We believe the resulting debt pay down opportunity translates into around 40 cents per share in earnings," the firm said.
Separately, TheStreet Ratings team rates AECOM INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate AECOM INC (ACM) a HOLD. The primary factors that have impacted our rating are mixe some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- ACM's very impressive revenue growth greatly exceeded the industry average of 3.8%. Since the same quarter one year prior, revenues leaped by 114.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has significantly increased by 105.72% to $282.64 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 77.78%.
- AECOM INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AECOM INC reported lower earnings of $2.33 versus $2.36 in the prior year. This year, the market expects an improvement in earnings ($2.95 versus $2.33).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Construction & Engineering industry. The net income has significantly decreased by 283.5% when compared to the same quarter one year ago, falling from $56.40 million to -$103.50 million.
- The share price of AECOM INC has not done very well: it is down 7.03% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full analysis from the report here: ACM Ratings Report