Argus Bullish On Aecom In Long Term, But Near Term Is 'Troubling'

Argus maintains its Hold rating on Aecom (NYSE: ACM) as it waits for stronger cash flow. But, the brokerage is bullish on the stock over the long term, as it sees growth catalysts in the form of rapid urbanization in emerging markets, aging infrastructure in developed countries and increasing consumption of natural resources.

"But the near term is more troubling. ACM's balance sheet is bloated with debt following the $6 billion acquisition of engineering company URS. In addition, recent results have come in toward the low end of management's guidance range. Cash flow generation has not been strong," analyst John Eade wrote in a note.

Related Link: Aecom Sells Off To Low Of $33.32 On Volume

Argus said the company scores below average on its three primary financial strength measurements of debt levels, fixed-cost coverage and profitability.

Eade has raised his FY16 EPS estimate to $3.31 from $3.23 to reflect the lower tax rate, and the estimate is above the midpoint of management's guidance range.

Shares of Aecom have underperformed the broad market over the last three months, rising 3 percent while the S&P 500 has gained 6 percent. At time of writing, shares of Aecom were up 0.66 percent to $32.18.

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