The last time we spoke about my pick in the Best Stocks for 2015 contest, I mentioned how pleased I was with ABM Industries’ (ABM) performance through the first quarter of the year. Now that it’s time for my mid-year update on the name, I’ve even more pleased that the stock has continued its climb higher.
At the end of the first quarter, ABM had gained about 12%. But as we approach the end of the second quarter, ABM has produced a total return of 16.9%, including dividends. That’s solid upside in less than six months’ time, and way ahead of the S&P 500’s 2.4% move.
Before we dig deeper into the second quarter and what I see ahead for the second half of the year, let’s quickly recap what this company is and why it sparked my interest in the first place.
ABM Industries is a maintenance company that provides services to thousands of commercial, industrial, government and residential facilities throughout the country. The company consists of five segments: Janitorial, Facility Services, Parking, Building & Energy Solutions and Security.
I chose ABM as my pick for the year because the company was growing earnings and was reasonably valued at a time when many valuations were still somewhat stretched. Plus, it had a 2.3% dividend yield at the beginning of the year, which added to its appeal.
In the end, this stock stood out to me as a sound combination of solid upside potential and reasonable downside risk.
Part of ABM’s success in the first quarter was thanks to a strong earnings report, and I was very pleased to see that trend continue in the second quarter. The company reported fiscal Q2 results on June 2, with earnings of 37 cents per share — up 12.1% — that beat estimates on the Street by 2 cents. Growth was driven by operational efficiencies. Revenues also increased in the quarter, up 3.2% aided by acquisitions.
The stock reacted to the strong quarter much like it has been reacting to earnings results all year: it marched steadily higher. ABM climbed more than 2% the following day and recently hit a new 52-week high of $33.69 on June 22.
As you see in the above chart, other than a brief but sharp blip in March this stock has had a solid run so far in 2015.
What about the second half of the year? At this point, with the stock currently selling at 17 times October 2016 EPS estimates, ABM is starting to look pretty fairly valued. I also think it could be vulnerable to a rise in rates, which is looking more likely by the end of the year. I wouldn’t recommend putting any new money into the name, but it remains a strong stock and a strong company that pays a nice 2% dividend yield.
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