Strength in the construction business, along with healthy manufacturing and service activities, is enabling the Zacks Building Products - Maintenance Services industry to support the improving demand environment.
Service essentiality, technology and capital-management measures are aiding ABM Industries Incorporated ABM and Rollins, Inc. ROL to sail through the pandemic-induced testing times.
About the Industry
Companies under the Zacks Building Products - Maintenance Services category provide a wide range of services, including electrical, lighting, cleaning, repair, replacement, heating, ventilation, air-conditioning, plumbing, landscaping and pest control. The industry is steadily recovering from the pandemic-induced weakness, with demand for services shooting up in residential, commercial and public buildings, and in various industries across the globe. To position themselves suitably in the post-pandemic era, service providers are increasing their efforts toward formulating and reassessing strategic initiatives, identifying sources of demand and targeting end markets. As these services are essential and cannot be delayed or canceled, demand for the same is expected to accelerate drastically post the pandemic, helping industry players recover quickly.
What's Shaping the Future of the Building Maintenance Industry?
Sustained Demand Expansion: Revenues and income have been increasing for the past several years, mainly because the companies offer services that consumers generally cannot delay. This has enabled most industry players to increase dividends.
Manufacturing and Service in the Pink: With economic activities in manufacturing as well as non-manufacturing sectors staying in the pink, demand for building maintenance services is anticipated to rise steadily. Both the manufacturing PMI and the Services PMI, measured by the Institute for Supply Management, have stayed above the 50% mark for the past 23 consecutive months, indicating continued expansion.
Increasing Construction Spending: The construction business, on which the industry is largely dependent, has strengthened sequentially and year over year. Per the latest release by the U.S. Census Bureau, construction spending during 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% from the March 2021 estimate. During the first three months of 2022, construction spending rose 12% from the same period in 2021.
Zacks Industry Rank Indicates Bleak Prospects
The Building Products - Maintenance Service industry, which is housed within the broader Business Services sector, currently carries a Zacks Industry Rank #215. This rank places it in the bottom 15% of more than 250 Zacks industries.
The group’s Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and current valuation.
Industry's Price Performance
Over the past year, the Zacks Building Products - Maintenance Service industry has depreciated 10.4% compared with the S&P 500 composite’s decline of 3.6%. The broader sector has declined 35.9% during the same period.
One-Year Price Performance
Industry's Current Valuation
Comparing the industry with the S&P 500 composite on the basis of forward 12-month price-to-earnings (P/E), which is a commonly-used multiple for the industry, we see that the industry trades at 29.29X, higher than the S&P 500’s 17.38X and the sector’s 23.64X.
Over the past five years, the industry has traded as high as 72.32X, as low as 25.11X and at a median of 37.44X.
Price to Forward 12 Month P/E Ratio
Two Stocks to Watch Right Now
We present two stocks that are both currently carrying a Zacks Rank #3 (Hold) and are well-positioned for near-term growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ABM Industries: This integrated facility solutions provider's multi-year comprehensive strategic plan, ELEVATE, focuses on providing clients with offerings that enhance transparency and efficiency, developing its own talent management system capabilities, expanding data usage and modernizing the digital ecosystem. ELEVATE is expected to significantly accelerate the company’s organic growth, improve its strategic and comprehensive positioning, and reinforce profitability.
The September 2021 acquisition of Able Services has strengthened ABM’s engineering and technical services, and expanded its sustainability and energy efficiency offerings. The buyout adds $1.1 billion in engineering and janitorial services revenues and is anticipated to achieve around $30 million to $40 million in cost synergies for the company.
The Zacks Consensus Estimate for fiscal 2022 EPS has increased 0.6% over the past 60 days. The stock lost 16.3% in the past year.
Price and Consensus: ABM
Rollins: This leading pest and termite control services provider is benefiting from its balanced approach to organic and inorganic growth.
The company’s revenues increased 10.3% year over year in the first quarter of 2022, with all of its business lines – residential, commercial and termite – registering growth.
The Zacks Consensus Estimate for 2022 EPS has been unchanged at 73 cents over the past 60 days. The stock lost 5.7% in the past year.
Price and Consensus: ROL
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