Aecom Earnings: Organic Net Service Revenue Growth and Margins Trending Above Long-Term Targets

Aecom ACM grew its fiscal third-quarter adjusted EPS by 12% year over year on a constant currency basis. While nothing in Aecom’s earnings release materially alters our long-term outlook for the firm, we’ve increased our fair value estimate to $85 from $84, mostly due to time value of money. We view the name as fairly valued at current levels.

Aecom’s fiscal third-quarter professional services organic net service revenue, or NSR, increased by 10% from the prior-year period, with double-digit organic NSR growth in both the Americas and the international segments. The company expanded its segment adjusted operating margin by 60 basis points year over year, from 14.6% to 15.2%. Aecom ended the quarter with a roughly $21.3 billion design backlog, up 10% from the same period last year on a constant-currency basis. Design proposals and submitted bids increased by over 30% year over year.

Management raised the midpoint of its full-year fiscal 2023 guidance and now anticipates adjusted EPS of $3.63-$3.73 ($3.55-$3.75 previously) and adjusted EBITDA of $950 million-$970 million ($935 million-$975 million previously). While Aecom did not issue formal guidance for fiscal 2024, management said on the earnings call that, assuming constant foreign exchange and interest rates, the company would be on pace to deliver adjusted EPS of over $5.00 in fiscal 2024 (compared with the original target of $4.30 and the previously updated target of $4.75). We are encouraged by Aecom’s continued margin expansion and we remain optimistic about its long-term revenue growth prospects as we think that the firm is poised to capitalize on opportunities driven by investments in infrastructure, clean energy solutions, and supply chains.