Deutsche Bank Downgrades ABM Industries (ABM) to Hold, 'Limited visibility'
Deutsche Bank analyst Fawne Alwy downgraded ABM Industries (NYSE: ABM) from Buy to Hold with a price target of $43.00 (from $65.00).
The analyst comments "ABM's results and guide (FY24 EPS to be down slightly) were disappointing as management indicated it expected: (i) to see a continued negative impact from a soft commercial real estate market in FY24; (ii) continued project delays in Technical Solutions (bundled energy solutions, EV charging installations, and RavenVolt); and (iii) a potential of lost business in the manufacturing & distribution segment from a large customer. Due to the above – and alongside wage inflation – the company also backed off on the timing of its long-term targets on margins and FCF generation (previously anticipated by FY25). We have limited visibility on all the factors above, and no longer feel comfortable recommending the stock. In our view, softness in the commercial real estate market may well linger beyond FY24 due to timing of lease expirations. We had previously believed that Class A commercial building that the company is exposed to would not be impacted as tenants from B and C buildings move up. It's also unclear to us when project delays in Technical Solutions will resolve as higher interest rates/financing costs are a clear factor. On the positive side, the company could see positive margin benefits from its technology investments (citing early progress) and FCF is primed to inflect given "Elevate" project spending is nearing the end of its spending phase. We ultimately now see risk/reward as more balanced and valuation as fair given market/macro uncertainties. We downgrade the stock to Hold and lower our PT to $43 (from $65), noting a -14% and -21% decline in our FY24 and FY25 EPS estimates."
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Shares of ABM Industries closed at $38.70 yesterday.