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By Steven Halpern, TheStockAdvisors.com |
Jan 10, 2010 |
 "Our top pick for 2010 is engineering and construction (E&C) firm AECOM Technology (NYSE: ACM)," says Geoffrey Seiler.
In his BullMarket.com the advisor explains, "AECOM, unlike some better-known E&C names, offers a relatively low-risk business model. It performs no construction work at all and thus has none of the lump-sum, fixed-rate contracts that other companies might sign." "The Los Angeles-based company focuses on a broad range of services that includes planning, design, environmental impact studies, project management, logistics and other jobs in the facilities, transportation, environmental, and energy and power segments. "Transportation is the company's largest end market, representing 28% of the business, followed by environmental at 25%, facilities work at 24%, and Management Support Services (MSS), which delivered 17% of its revenues in fiscal 2009. "Energy and power is the company's smallest segment, representing about 6% of its total revenues, but the company does view it as a growth opportunity. It is particularly strong in hydroelectric projects. "The MSS business is 100% dedicated to working directly for the U.S. government, but government spending of all types -- either from federal state and local governments and foreign governments -- accounts for 70% of the company's revenue. The remainder comes from the private sector. "AECOM has been under some pressure toward the end of the year, despite initially rallying following a strong fiscal Q4 earnings report in November. The culprit was some weak reports from fellow E&C firms and the Dubai debt debacle. "However, AECOM isn't subject to the same type of energy sector cancellations that some other E&C companies experienced, and its exposure to Dubai is negligible. "Impressively, AECOM is one of the few E&C firms to grow its backlog sequentially last quarter. Total backlog stood at a record $9.5 billion on September 30th, a 10% increase year over year and a 3% increase quarter over quarter. "Meanwhile, AECOM is well positioned to be a beneficiary of increased government stimulus spending in 2010, as well as the possible passage of a substantial highway bill late next year. "AECOM guided for fiscal year 2010 EPS to be in the range of $1.90 to $2.00. The midpoint of this range reflects 15% growth in earnings per share. We think the guidance is relatively conservative. "In summary, we like AECOM's position in the marketplace, its consistent growth, and sound low-risk strategy. With a pristine balance sheet, trading at under 14x the midpoint of conservative guidance, and an over 15% expected 5-year growth rate, AECOM is undervalued and our top pick for 2010."
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