AECOM (ACM)

Underperform
We’re skeptical of AECOM. Its underwhelming revenue growth and failure to generate meaningful free cash flow is a concerning trend. StockStory Analyst Team
Adam Hejl, CEO & Founder
Max Juang, Equity Analyst

2. Summary

Underperform

Why AECOM Is Not Exciting

Founded in 1990 when a group of engineers from five companies decided to merge, AECOM (NYSE:ACM) provides various infrastructure consulting services.

  • High input costs result in an inferior gross margin of 6.4% that must be offset through higher volumes
  • Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 1.6% declines over the past two years
  • One positive is that its earnings per share have outperformed the peer group average over the last five years, increasing by 14.6% annually
AECOM is in the penalty box. There are more appealing investments to be made.
StockStory Analyst Team

Why There Are Better Opportunities Than AECOM

AECOM is trading at $114.88 per share, or 22.5x forward P/E. While valuation is appropriate for the quality you get, we’re still on the sidelines for now.

We’d rather invest in similarly-priced but higher-quality companies with more reliable earnings growth.

3. AECOM (ACM) Research Report: Q1 CY2025 Update

Infrastructure consulting service company AECOM (NYSE:ACM) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 4.4% year on year to $3.77 billion. Its non-GAAP profit of $1.25 per share was 4.8% above analysts’ consensus estimates.

AECOM (ACM) Q1 CY2025 Highlights:

  • Revenue: $3.77 billion vs analyst estimates of $4.17 billion (4.4% year-on-year decline, 9.5% miss)
  • Adjusted EPS: $1.25 vs analyst estimates of $1.19 (4.8% beat)
  • Adjusted EBITDA: $290 million vs analyst estimates of $287.2 million (7.7% margin, 1% beat)
  • Management slightly raised its full-year Adjusted EPS guidance to $5.15 at the midpoint
  • EBITDA guidance for the full year is $1.20 billion at the midpoint, in line with analyst expectations
  • Operating Margin: 6.8%, up from 5.1% in the same quarter last year
  • Free Cash Flow Margin: 4.7%, up from 1.9% in the same quarter last year
  • Backlog: $24.27 billion at quarter end, up 2.2% year on year
  • Market Capitalization: $13.58 billion

Company Overview

Founded in 1990 when a group of engineers from five companies decided to merge, AECOM (NYSE:ACM) provides various infrastructure consulting services.

The company provides advisory, planning, consulting, architectural, and engineering design services to public and private clients. Businesses and government organizations in industries like transportation, facilities, water management and go to AECOM for its consulting services.

The company offers its consulting services to five types of markets, which include transportation, like rail, highways, bridges, and ports; water, like drought response and wastewater management; and energy, like hydropower and solar power.

The US Government makes up half of the company’s operating revenue, with the other half going to private companies. Operating revenue from the US Government is divided into multiple subsegments ranging from local municipalities to the federal government, so no single public (or private) entity makes up a significant portion of the company’s revenue source. Recurring revenue is a part of AECOM’s business model in the form of multi-year contracts and recurring consulting services for the same project.

4. Engineering and Design Services

Companies providing engineering and design services boast ever-evolving technical expertise. Compared to their counterparts who manufacture and sell physical products, these companies can also pivot faster to more trending areas due to their smaller physical asset bases. Green energy and water conservation, for example, are current themes driving incremental demand in this space. On the other hand, those providing engineering and design services are at the whim of construction and infrastructure project volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.

AECOM’s competitors include Jacobs Engineering (NYSE:J), Fluor (NYSE:FLR), and KBR (NYSE:KBR).

5. Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, AECOM’s sales grew at a sluggish 3.7% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector and is a rough starting point for our analysis.

AECOM Quarterly Revenue

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. AECOM’s annualized revenue growth of 8.9% over the last two years is above its five-year trend, suggesting some bright spots. AECOM Year-On-Year Revenue Growth

We can better understand the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. AECOM’s backlog reached $24.27 billion in the latest quarter and averaged 1.6% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company fulfilled orders at a faster rate than it added new orders to the backlog. This implies AECOM was operating efficiently but raises questions about the health of its sales pipeline. AECOM Backlog

This quarter, AECOM missed Wall Street’s estimates and reported a rather uninspiring 4.4% year-on-year revenue decline, generating $3.77 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 8.7% over the next 12 months, similar to its two-year rate. This projection is above the sector average and implies its newer products and services will help maintain its recent top-line performance.

6. Gross Margin & Pricing Power

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

AECOM has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 6.4% gross margin over the last five years. Said differently, AECOM had to pay a chunky $93.55 to its suppliers for every $100 in revenue. AECOM Trailing 12-Month Gross Margin

AECOM produced a 7.7% gross profit margin in Q1, marking a 1.1 percentage point increase from 6.6% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

7. Operating Margin

AECOM was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.3% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, AECOM’s operating margin rose by 2.4 percentage points over the last five years, as its sales growth gave it operating leverage.

AECOM Trailing 12-Month Operating Margin (GAAP)

This quarter, AECOM generated an operating profit margin of 6.8%, up 1.7 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

8. Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

AECOM’s EPS grew at an astounding 19% compounded annual growth rate over the last five years, higher than its 3.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

AECOM Trailing 12-Month EPS (Non-GAAP)

We can take a deeper look into AECOM’s earnings to better understand the drivers of its performance. As we mentioned earlier, AECOM’s operating margin expanded by 2.4 percentage points over the last five years. On top of that, its share count shrank by 17.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. AECOM Diluted Shares Outstanding

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For AECOM, its two-year annual EPS growth of 19.3% is similar to its five-year trend, implying strong and stable earnings power.

In Q1, AECOM reported EPS at $1.25, up from $1.04 in the same quarter last year. This print beat analysts’ estimates by 4.8%. Over the next 12 months, Wall Street expects AECOM’s full-year EPS of $4.99 to grow 2.9%.

9. Cash Is King

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

AECOM has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.1%, subpar for an industrials business.

Taking a step back, we can see that AECOM’s margin dropped by 1.4 percentage points during that time. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business.

AECOM Trailing 12-Month Free Cash Flow Margin

AECOM’s free cash flow clocked in at $178.4 million in Q1, equivalent to a 4.7% margin. This result was good as its margin was 2.9 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends trump fluctuations.

10. Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although AECOM hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 12.6%, higher than most industrials businesses.

AECOM Trailing 12-Month Return On Invested Capital

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, AECOM’s ROIC averaged 4.2 percentage point increases each year. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

11. Balance Sheet Assessment

AECOM reported $1.6 billion of cash and $2.55 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

AECOM Net Debt Position

With $1.14 billion of EBITDA over the last 12 months, we view AECOM’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $64.2 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

12. Key Takeaways from AECOM’s Q1 Results

It was encouraging to see AECOM beat analysts’ EPS expectations this quarter. We were also happy its EBITDA narrowly outperformed Wall Street’s estimates. On the other hand, its revenue missed significantly. Overall, this quarter was mixed. The stock remained flat at $103 immediately after reporting.

13. Is Now The Time To Buy AECOM?

Updated: July 27, 2025 at 11:24 PM EDT

Before investing in or passing on AECOM, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

AECOM isn’t a terrible business, but it doesn’t pass our bar. First off, its revenue growth was weak over the last five years. And while its remarkable EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its low gross margins indicate some combination of competitive pressures and high production costs. On top of that, its backlog declined.

AECOM’s P/E ratio based on the next 12 months is 22.5x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $121.92 on the company (compared to the current share price of $114.88).