The strength of the construction sector, as well as healthy manufacturing and services activities, allow the Zacks Building Products – Maintenance Services industry to support the improvement of the demand environment.
Essentiality of services, technology and capital management measures contribute ABM Industries Incorporated ATMs and Rollins, Inc. ROL to get through pandemic-induced testing periods.
About the industry
Companies in the Zacks Building Products – Maintenance Services category provide a wide range of services, including electrical, lighting, cleaning, repair, replacement, heating, ventilation, air conditioning, plumbing, l landscaping and pest control. The industry is gradually recovering from the pandemic-induced weakness, with demand for services booming in residential, commercial and public buildings, and in various industries around the world. To position themselves appropriately in the post-pandemic era, service providers are redoubling efforts to formulate and reassess strategic initiatives, identify sources of demand, and target end markets. As these services are essential and cannot be delayed or cancelled, demand for them is expected to accelerate significantly post-pandemic, helping industry players recover quickly.
What is shaping the future of the building maintenance industry?
Sustained expansion of demand: Revenues and incomes have been growing for several years, mainly because companies are offering services that consumers generally cannot expect. This has allowed most players in the sector to increase their dividends.
Manufacturing and Service in the Rose: With economic activities in the manufacturing and non-manufacturing sectors remaining in the pink, the demand for building maintenance services is expected to increase steadily. The manufacturing PMI and services PMI, as measured by the Institute for Supply Management, have remained above the 50% mark for the past 23 consecutive months, indicating continued expansion.
Increase in construction spending: The construction sector, on which the industry largely depends, has strengthened sequentially and year after year. According to the latest release from the US Census Bureau, construction spending in March 2022 was estimated at a seasonally adjusted annual rate of $1,730.5 billion, up 0.1% from the revised February 2022 estimate. and 11.7% compared to the March 2021 estimate. In the first three months of 2022, construction spending increased by 12% compared to the same period in 2021.
Zacks’ industry rankings point to bleak prospects
The building products industry – maintenance service, which is part of the wider sector Business services industry, currently carries a Zacks Industry Ranking of #215. This ranking places it in the bottom 15% of more than 250 Zacks industries.
That of the group Industry ranking, which is essentially the average of the Zacks ranking of all member stocks, indicates short-term underperformance. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
Before outlining a few stocks you might want to consider for your portfolio, let’s take a look at recent stock market performance and current industry valuation.
Industry price performance
Over the past year, the Zacks Building Products – Maintenance Service sector has depreciated 10.4% compared to the 3.6% decline in the S&P 500 composite. 35.9% over the same period.
Year-over-year price performance
Current industry assessment
Comparing the industry with the S&P 500 composite based on the 12-month price-to-earnings (P/E) ratio, which is a commonly used multiple for the industry, we see that the industry is trading at 29.29X , higher than the 17.38X of the S&P 500 and the 23.64X of the sector.
Over the past five years, the industry has traded as low as 72.32X, as low as 25.11X and at a median of 37.44X.
12 month price/earnings ratio
Two stocks to watch right now
We feature two stocks that both currently have a Zacks rank of #3 (Hold) and are well positioned for near-term growth.
ABM Industries: This integrated facilities solutions provider’s comprehensive multi-year strategic plan, ELEVATE, focuses on providing customers with offerings that improve transparency and efficiency, developing its own talent management system capabilities, l expanding data usage and modernizing the digital ecosystem. ELEVATE is expected to significantly accelerate the company’s organic growth, improve its strategic and global positioning and strengthen its profitability.
The acquisition of Able Services in September 2021 strengthened ABM’s engineering and technical services and expanded its sustainability and energy efficiency offerings. The buyout adds $1.1 billion to engineering and janitorial services revenue and is expected to generate approximately $30-40 million in cost synergies for the company.
The Zacks consensus estimate for FY2022 EPS is up 0.6% over the past 60 days. The stock has lost 16.3% over the past year.
Pricing and Consensus: ABM
Rollin: This leading provider of pest and termite control services benefits from its balanced approach to organic and inorganic growth.
The company’s revenue rose 10.3% year-over-year in the first quarter of 2022, with all of its lines of business – residential, commercial and termite – recording growth.
The Zacks consensus estimate for 2022 EPS has been unchanged at 73 cents over the past 60 days. The stock has lost 5.7% over the past year.
Pricing and Consensus: ROL
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.