The Institutions Clean Up With ABM Industries
ABM Industries (NYSE: ABM) is a ho-hum name among stocks but one of the cleanest plays for these dirty economic times. The company provides a variety of facility solutions that include janitorial, electrical, custodial, and groundskeeping among others, services that should remain in high demand despite the economic uncertainty. One of the defining factors of the times is tight employment markets and this is a condition that we see driving outsourced services such as what ABM Industries has to offer.
If the institutions can be used as a guide, we think they see the same thing we do in this investment; stability and a steady 2.0% yield. The evidence of this is steady institutional buying over the past year and a high 95% institutional ownership. While there has been some rotation over the past year, the net of activity has been bullish for the past 6 consecutive quarters and selling has slacked off in the first half of 2022.
ABM Industries Is A Deep Value, And Some Analysts Are Noticing
ABM Industries is a deep value and a high yield compared to others in the business services industry. The stock trades at roughly 10X its earnings while paying a 2.0% yield compared to double that valuation or more for Cintas (NASDAQ: CTAS), Unifirst (NYSE: UNF), and even Stericycle (NASDAQ: SRCL) and their dividends leave something to be desired; yield. ABM Industries is paying a very safe 2.0% yield with shares trading near $40.50 while Cintas, the highest valuation in the lot, is paying only 1.0%. Unifirst pays a much smaller 0.75% and Stericycle nothing.
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In regards to the analysts, the activity over the past year has been mixed and even tepid but we think it marks a bottom in the sentiment if not the price action. To begin, the stock lost coverage over the past year but the number of analysts covering the stock with analysis younger than 1-year bottomed in late 2021. Since then, the stock has picked up several new calls for a total of 5 that amount to a weak Buy. The latest comes from Robert W. Baird and was issued in late June 2022. That shout-out includes an upgrade from Neutral to Outperform and a price target of $50. That target compares poorly to the $55.50 consensus price target which implies about 40% of upside but we see an upward bias in it. The high price target of $65 was also set recently and we think it’s a bit low at roughly 16X earnings.
A Knee-Jerk Reaction To Earnings Is An Opportunity
ABM Industries recently reported Q2 2022 results beating on both the top and bottom lines and raising the guidance. The company CEO Scott Salmirs says "... the performance was driven by acquisitions, strong demand for core janitorial services, and ongoing recovery in aviation, partially offset by an expected decline in disinfection-related work orders and EnhancedClean services from heightened levels in Q2 2021," and yet the stock fell about 15% in the wake of the report. In our view, this is a knee-jerk reaction to some news that might have been even better if not for the impacts of labor shortages that are affecting the business.
Turning to the chart, the stock is already bouncing from key support at the bottom of a long-term trading range. This move could easily gain traction over the next few days or weeks and push the price action up to the short-term moving average. The short-term moving average will be a hurdle for the stock but, if it can be overcome, we see price action moving up to the top of the range near $55 by early fall 2022.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| ABM Industries (ABM) | $44.34 | +1.2% | 2.03% | 11.34 | Hold | $45.20 |
| Stericycle (SRCL) | $49.91 | +2.1% | N/A | -207.95 | Hold | $62.25 |
| Cintas (CTAS) | $661.29 | -0.2% | 0.82% | 45.67 | Moderate Buy | $661.21 |
| UniFirst (UNF) | $158.51 | +1.7% | 0.83% | 25.94 | Reduce | $177.75 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
