Citi maintains a "Buy" rating on Aecom (ACM), citing strong demand and effective execution as key drivers for continued earnings growth into FY25 and beyond. The stock was trading at $110.00, up 1.08% on November 20. Aecom's strategy focuses on expanding its Program Management and Water and Environment Advisory businesses, alongside shareholder returns through cash deployment. The company projects another year of double-digit EPS growth for FY25, supported by a 10% y/y increase in its award pipeline and a 5% y/y rise in its design backlog, aligning with its 5%-8% net service revenue growth guidance.
Despite concerns over federal spending, Aecom's federal sales account for less than 10% of total sales, with significant growth expected in water and international markets. Citi notes, "We sense conservativism in ACM’s 30bps of expected FY25 margin expansion after delivering 110 bps in FY24." The company also forecasts 100%+ free cash flow conversion for FY25, with a strong balance sheet at 0.8x net leverage, supporting strategic investments and share repurchases.
Citi's model update includes a slight increase in FY25/FY26 adjusted EBITDA to $1,190 million and $1,281 million, respectively, maintaining a target price of $128 based on a 14x EV/EBITDA multiple.