Ricardo Pillai
3 min read
In This Article:
We came across a bullish thesis on ABM Industries Incorporated (ABM) on Directionally Correct Research’s Substack by Will Powers. In this article, we will summarize the bulls’ thesis on ABM. ABM Industries Incorporated (ABM)'s share was trading at $46.32 as of 12th June. ABM’s trailing and forward P/E were 37.11 and 12.29 respectively according to Yahoo Finance.
A person in a bright and spotless kitchen, showcasing the efficiency of the line of household cleaning services.
ABM Industries (ABM), a provider of janitorial, maintenance, landscaping, and other facility services, recently drew attention following the abrupt departure of its longtime CFO, likely tied to missteps in an ERP system rollout that hindered cash collections. This change has cast uncertainty over the company's near-term strategic direction, especially with ABM’s unusually generous change-in-control severance packages fueling speculation about potential M&A.
Despite this backdrop, ABM’s latest quarterly results were solid—organic growth accelerated to 3.8% YoY, the highest since Q1 2024, and its Buildings & Industry segment returned to growth ahead of internal expectations. Meanwhile, the company’s Technical Solutions division showed strong momentum, with record backlog and 20% YoY growth, reflecting demand from areas like electrical contracting.
Encouragingly, free cash flow turned positive at $15M in Q2 from a deeply negative position in Q1, bolstering management’s credibility on H2-weighted recovery in collections and growth. If cash generation continues improving, ABM could surpass $200M in free cash flow for FY25 even after restructuring and earn-out costs, offering value at ~14x FCF. Looking further out, ABM could sustain low single-digit growth through trends like office recovery, reshoring, and aviation strength, while modest margin expansion and reduced restructuring drag could support FCF/share growth to ~$5 by FY27.
A modest re-rating could yield a $68 stock and 20% IRR with dividends. Still, ABM remains a show-me story; until it demonstrates consistent cash conversion and shareholder return discipline, market skepticism may persist. The next quarter will be key in validating the H2 recovery narrative and management’s ability to turn operational progress into investor confidence.
Recently, we highlighted a bullish thesis on James Hardie (JHX) by the same author, centered on its AZEK acquisition, synergy potential, and long-term margin expansion. The author is bullish on ABM Industries (ABM), noting its FCF recovery, resilient organic growth, and restructuring progress. Both are seen as undervalued compounders with execution risk but attractive IRRs if operational narratives hold.
