ABM Industries Stock: A Dividend King at a Discount

Key Points

• ABM Industries is a diversified business service stock that is growing and delivering robust capital returns to investors. 
• The company gave optimistic guidance for 2205 and issued targets above the consensus forecasts.
• Capital returns include dividends and buybacks; buybacks reduced the count by 3.5% in 2024. 

Shares of ABM Industries NYSE: ABM fell more than 7% after its FQ4 release, opening an attractive entry for dividend growth investors. This Dividend King fell to a critical support level near the middle of its long-term trading range, where support is likely to be robust.

The Q4 report offers little reason for the market to sell off as hard as it did and every reason to believe the rebound will be strong. The primary culprits are cash flow, earnings, and free cash flow, all contracted versus the top-line advance, but there is a mitigating factor.

Increased spending related to business investment and growth opportunities deeply impacted the results but set the business up to sustain growth and its robust capital return. 

ABM Industries pays one of the healthiest dividends of any Dividend King, yielding over 2.0% with shares near $50.

The company pays less than 30% of its earnings, including the recent 18% distribution increase, and can sustain annual increases for many years. 

The balance sheet is also strong.

The highlights at the end of the year of F2024 include increased debt and total liability offset by increased assets, which left equity flat and leverage low.

Long-term debt leverage is less than 1x equity. 

ABM Industries Growth Supported by Diversified Business

ABM Industries is a diversified facilities services company operating in five primary segments. Its markets include technical solutions, aviation, business & industry, and manufacturing & distribution, which produced mixed results for the quarter. The 4% top-line growth is driven by a 32% gain in technical solutions and an 11% gain in aviation offset by 1% declines in B&I and M&D. B&I and M&D are affected by macroeconomic headwinds and a one-off related to a single customer and expected to revert to growth in 2025. 

The margin news is mixed with margin contracting and earnings declining compared to last year but less than expected. The critical details include the $0.90 in adjusted earnings, 400 basis points better than MarketBeat’s reported consensus, and sufficient cash flow to sustain the capital return outlook and balance sheet health. 

The company's guidance is optimistic. It expects growth in all of its end markets in F2025 and has issued strong guidance. The forecast for adjusted EPS ranges from $3.60 to $3.80, with the midpoint above the analysts' consensus.  

Institutional Inflows Support ABM Stock Price in 2024

AB Industries’ institutional activity is bullish for its stock price. The institutional activity is bullish for the year, including both quarters of the second half, aligning with the stock price move to new highs and the subsequent bounce from support when the market corrected. Institutions own more than 90% of the stock, so they provide a strong tailwind that is unlikely to end, given the 2025 outlook. The more likely scenario is that institutions will continue to buy this stock and may accelerate purchase now that it is down and discounted. Analysts' activity is less robust. MarketBeat has tracked only three revisions this year, all positive, boosting the consensus by 25% and indicating potential value with the stock trading near $50.

The technical action is promising. The market for ABM shares fell but hit the critical $50 level and began to rebound. Critical support is in the middle of a multi-year trading range, which is a strong target for technical traders. A move below that level would be bearish for the market and may lead it to retest support at the range's low end. However, the more likely scenario is that institutional investors will support the market for this business service at $50, eventually leading to a retest of the ranges’ high end at nearly $57.50.