Its closest publicly traded competitor is DTZ, a subsidiary of Australia-based UGL Limited, which does not trade in the ADR (American Depository Reserve) system.
For comparison purposes, we chose two companies that compete in two of ABM Industries’ markets: security and health care. The companies are micro-cap Command Security Corporation and Healthcare Services Group, Inc. (NASDAQ:HCSG).
The following table compares some key performance metrics for the three companies:
| Indicators | ABM Industries | Health Care Services Group | Command Security Corporation |
|---|---|---|---|
| P/E (ttm) | 19.1 | 32.4 | 44.8 |
| P/B Ratio | 1.6 | 7.0 | 0.7 |
| P/S Ratio | 0.3 | 1.5 | 0.1 |
| Forward P/E | 12.7 | 27.9 | 11.3 |
| Dividend Yield | 2.37% | 2.73% | — |
| Net Income Growth (3 Year Avg) | 4.9% | 13.4% | -32.8% |
| Debt/Equity | 0.4 | — | — |
| Return on Equity (ttm) | 8.6% | 22.4% | 1.7% |
| Current Price | $25.74 | $24.50 | $1.39 |
Source: Morningstar, as of Aug. 22, 2013.
Healthcare Services Group, Inc. (NASDAQ:HCSG), provides services to health care support operations such as laundry, dietary service, and facility maintenance in the health-care industry. Typically, these services involve administrative, management, and operating expertise. This company has an edge in past performance, but ABM Industries’ forward-looking valuations and book value appear more attractive.
With a market cap of a mere $13 million, one could consider Command Security Corporation a penny stock. The company serves commercial, industrial, financial, governmental, and aviation sectors across the US with uniformed security officers and other security services. The company’s past financial performance doesn’t look strong, and the Q1 2014 results it released in mid-August were disappointing. Although revenues increased 6.5%, both net income and earnings per share fell due to ongoing litigation costs.
What does the future hold?
ABM may already have turned the corner, since its latest positive quarterly results followed an equally positive report for Q4 2012, with an impressive 53.9% increase in net income. For the full fiscal year 2012, however, its net income declined 8.6%.
ABM Industries has a strong balance sheet with operating cash flow of $133 million and free cash flow of $111 million, both TTM. The company has the cash to continue its strategy of growth by acquisition.
The US economy is in a painfully slow recovery, but as business operations expand ABM Industries stands to benefit from more facilities needing the company’s services.
In essence, ABM Industries is not a “make or break” stock. The company survived the financial crash because businesses cannot completely eliminate many of the non-discretionary services the company provides. However, one thing to watch is the company’s presence in the health care sector, which stands to benefit substantially from the onset of baby boomer retirements.
Final verdict
ABM Industries has been in business for 103 years, and there is no reason to believe the company cannot survive another 103. Facilities management is not a field likely to be revolutionized by game-changing technological breakthroughs. This is a solid company with a sturdy record of dividend payments for income investors. Its recent financial performance issues leave the stock trading at less than two times book value, making it an attractive value proposition as well.
The article ABM Industries: To Buy or Not To Buy? originally appeared on Fool.com is written by Marina Avilkina.
Marina Avilkina has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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