AECOM (ACM) Joint Venture Clinches FCFR Contract In Canada

AECOM (NYSE:ACM) recently announced that its joint venture with Aecon and SNC-Lavalin secured a Fuel Channel and Feeder Replacement (FCFR) contract from Bruce Power at the Bruce Nuclear Generating Station, located in Kincardine, Ontario. Valued at CAD 475 million, the joint venture will perform its work under Shoreline Power Group. Notably, AECOM’s interest in the deal will be booked in its backlog in third-quarter fiscal 2018.

This project falls under Bruce Power’s Major Component Replacement (MCR) program - Unit 6, a part of its Life-Extension Program, which will enable Bruce Power’s units to operate safely through to 2064. Notably, under the MCR program, Unit 6 is the first of six reactors to be refurbished by Bruce Power.

Work related to the deal will include removal and replacement of calandria tubes, pressure tubes and feeders, construction management as well as trade labor. The project is scheduled to start in June 2020 and expected to be completed in 2022.

Separately, the joint venture also entered into a Preferred Supplier Agreement with Bruce Power. Per the terms of the agreement, Bruce Power will be able to award similar contracts to this joint venture for the remaining five units under the MCR Program.

Our Take

AECOM has a diversified portfolio that comprises both designing and construction services. In addition, the company’s business is spread across a number of key markets that mitigates operating risks. It is also efficient in dealing with cyclical market volatility, which helps AECOM capitalize on upside of the company’s business during downturns. Currently, over 70% of AECOM’s profits are generated from infrastructure and defense markets that are poised to benefit from the favorable political climate both in the United States and abroad.

In a year’s time, shares of AECOM have returned 3.3% compared with the industry’s increase of 0.4%.

Moreover, this Zacks Rank #3 (Hold) company is witnessing robust prospects in all of its segments. Evidently, all three segments of AECOM performed impressively in the fiscal second quarter, with strong growth in building construction and steady improvement in Americas design business. Meanwhile, the Construction Services and the Management Services segments continue to benefit from higher margin work in the building construction businesses. At the end of the fiscal second quarter, the company registered an all-time high backlog of $50 billion. The company’s solid backlog levels, which are a key indicator of revenue growth, reflect significant opportunities in the forthcoming quarters.

However, cyclical demand for the company’s services and currency fluctuations are likely to thwart growth moving ahead. Also, lower capital spending on part of major clients remains a major concern for AECOM. This apart, volatility in the oil and gas market, with declining prices and spending levels, has been hurting the company’s projects and orders.

Stocks to Consider

Some better-ranked stocks from the same space are Jacobs Engineering Group Inc. (NYSE:JEC) , KBR, Inc. (NYSE:KBR) and Quanta Services, Inc. (NYSE:PWR) . All these three companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Jacobs Engineering Group outpaced estimates in the preceding four quarters, with an average earnings surprise of 12.3%.

KBR surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 14.1%.

Quanta Services exceeded estimates thrice in the trailing four quarters, with an average positive earnings surprise of 6.7%.

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