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Analyzing ABM Industries’ Newly Added Risk Factor?

New York-based ABM Industries (ABM) is a Fortune 500 company that provides facility services such as janitorial, parking, engineering, and landscaping. Its clients include commercial office buildings, schools, hospitals, airports, and entertainment venues. The company recently acquired facilities management provider Able Services to expand its scale and accelerate growth.

ABM’s earnings report shows revenue rose 14.2% year-over-year to $1.7 billion in Fiscal Q4 2021 ended October 31, exceeding the consensus estimate of $1.6 billion. It posted adjusted EPS of $0.85, which rose from $0.69 in the same quarter last year and beat the consensus estimate of $0.80.

The company ended Q4 with $62.8 million in cash and $1.1 billion in debt. ABM plans to distribute a quarterly cash dividend of $0.195 per share on February 7. It has set January 5 as the ex-dividend date.

With this in mind, we used TipRanks to take a look at the risk factors for ABM Industries.

Risk Factors

According to the new TipRanks Risk Factors tool, ABM Industries’ main risk category is Finance and Corporate, representing 32% of the total 22 risks identified for the stock. Production and Macro & Political are the next two major risk categories, each accounting for 23% of the total risks. ABM has recently added one new Finance and Corporate risk factor.

The company informs investors that it expects the Able Services acquisition to bring growth opportunities and unlock cost synergies. Achieving these benefits will depend on the successful integration of Able’s business with ABM. But the company cautions that integrating the businesses could cause challenges that may disrupt its normal operations. It mentions that it may incur unexpected expenses or lose clients and personnel in the integration process. Therefore, ABM tells investors that if the Able integration proves to be more difficult than anticipated, it may not achieve the expected benefits, and its financial condition and stock price could be adversely impacted. 

ABM has launched what it calls the Elevate initiative, which is focused on increasing operational efficiency and driving long-term profitability. The initiative will involve making changes to ABM’s business systems and processes. The company estimates it will invest $150 million to $175 million in the Elevate program, with $80 million being invested in Fiscal 2022. ABM expects that the program will be mostly complete by the end of Fiscal 2025. However, it cautions investors in an updated risk factor that the Elevate initiative could cause more significant disruptions to its operations than it anticipates. Furthermore, the company tells investors that executing the strategy could result in expenses that exceed its current estimates. 

The Finance and Corporate risk factor’s sector average is 40%, compared to ABM’s 32%. ABM stock has gained about 10% since the beginning of 2021.

Analysts’ Take

KeyBanc analyst Sean Eastman recently reiterated a Buy rating on ABM stock but lowered the price target to $55 from $60. Eastman’s reduced price target suggests 32.43% upside potential.

Consensus among analysts is a Moderate Buy based on 1 Buy and 1 Hold.

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