After naming ABM Industries, Inc. (NYSE:ABM) as my pick in the Best Stocks for 2015 contest at the end of December, I’ve been watching the stock closely. I’ve been quite pleased with its trading action so far this year, and I’m even more excited to watch it continue to climb as we enter the second quarter.
In many ways, ABM is similar to my 2014 pick, Fortegra Financial Corp (NYSE:FRF), which had also been a relative underperformer the previous year. It got acquired during the contest, resulting in a 20% win.
I picked ABM because the company was growing earnings and very reasonably valued at a time when many valuations were still somewhat stretched. Plus, its then-2.3% dividend yield only added to its appeal. All in all, ABM stock stood out to me as a sound combination of solid upside potential and reasonable downside risk.
To briefly recap, ABM Industries is a maintenance company that provides services to thousands of commercial, industrial, governmental and residential facilities throughout the country. The company consists of five segments: Janitorial (roughly 50% of revenue and profit), Facility Services (mechanical engineering and technical services), Parking, Building & Energy Solutions (heating, ventilation, etc.) and Security.
ABM Stock Climbs on Earnings
As I mentioned, ABM stock’s consistent earnings growth was what initially put this stock on my radar, and I was pleased to see the company continue its track record in its most recent quarterly report. Adjusted earnings came in at 38 cents per share — up from 25 cents per share last year and better than expectations — aided by the renewal of a tax credit. And top-line growth was also strong at 5% — 3% of which was organic growth, while 2% stemmed from acquisitions.
I also liked that the company’s pipeline for new business was robust, and management increased their fiscal 2015 earnings guidance to $1.75-$1.85 per share. Keep in mind that in ABM’s fourth-quarter report management gave guidance of $1.65-$1.75 per share, which disappointed traders and sent the stock 5% lower before turning back around.
Excluding a 16-cent dividend paid on March 31, ABM stock has climbed nearly 2.5% post-earnings.
ABM has performed well through the first quarter of the year. After finally managing to break and hold above resistance at $30 in the middle of February, ABM stock climbed an impressive 12% including dividends.
Assuming the United States economy remains on track, I believe we could easily see this company’s earnings increase to $1.96 per share in fiscal 2016, which should pave a path all the way up to a $35 share price by year end — or a current market multiple of 18 times earnings. And ABM stock’s 2% dividend yield makes it more attractive and adds to its value.
I do want to keep an eye on the possibility of higher interest rates and how investors react, which could eventually put some pressure on ABM stock. However, the timing is still very much up in the air. ABM has performed well through the rocky start to the year, and I expect its impressive growth continue.