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ABM or ROL: Which is a Better Building Maintenance Stock?

Zacks Equity Research

Demand for building maintenance services is currently in good shape driven by economic stability, rising consumer and government spending, and strong construction activity. Strict EHS policies in North America and Europe should drive demand for building maintenance services. Rapid industrialization and urbanization will continue to drive demand.

However, the U.S.-China trade war has been leading to higher material costs for building developers, thanks to steel and aluminum tariffs.

Given this backdrop, it is not a bad idea to undertake a comparative analysis of two building maintenance services stocks, ABM Industries Incorporated ABM and Rollins, Inc. ROL. Both the stocks are part of the broader Business Services sector (one of the 16 Zacks sectors). While ABM has a market capitalization of $2.6 billion, Rollins’ market cap is $2.3 billion.

As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Price Performance

ABM clearly scores over Rollins in terms of price performance. Shares of ABM have gained 20.5% year to date, outperforming the 0.3% rise of Rollins and 4.1% growth of the industry.

Earnings Expectations

Earnings growth along with stock price gains is often an indication of a company’s strong prospects.

ABM’s earnings for the current year are projected to grow 5.8% while that of Rollins are expected to increase 2.8%. For the next year, Rollins’ earnings are expected to grow 8.7% while that of ABM Industries are projected to increase 4.7%. Thus, ABM has an edge over Rollins in terms of current-year projected earnings growth. Rollins wins the round in terms of earnings growth projections for the next year.

Earnings Surprise History

The earnings surprise history of a stock helps investors get an idea of the stock’s performance in the previous quarters.

ABM Industries has an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters with an average positive beat of 8.7%. Rollins reported a trailling four-quarter negative earnings surprise of 3.1%, on average.

Net Margin

Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.

Rollins’ TTM net margin of 11.9% places it favorably in comparison to the industry’s figure of 7.9% and ABM’s 2%.

Valuation

Comparing the two stocks with the industry on the basis of price to forward 12 months’ earnings (P/E), which is a commonly used multiple for the industry, we see that Rollins trades at 45.67X, higher than ABM Industries’ 18.11X. The tally is also ahead of the industry’s 37.01X.

So, ABM Industries looks cheaper than Rollins.

Bottom Line

Our comparative analysis shows that while ABM scores over Rollins in terms of year-to-date price performance, projected earnings growth for the current year and surprise history, Rollins has an edge in terms of projected earnings growth for the next year and net margin. In spite of a faster share price rally, ABM‘s valuation is cheap compared with Rollins.

Stocks to Consider

A few better-ranked stocks in the broader Business Services sector are Global Payments GPN and Cardtronics CATM, each carrying a Zacks Rank of 1.

Long-term expected EPS (three to five years) growth rate for Global Payments and Cardtronics is 17% and 4%, respectively.

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Cardtronics PLC (CATM) : Free Stock Analysis Report
 
ABM Industries Incorporated (ABM) : Free Stock Analysis Report
 
Rollins, Inc. (ROL) : Free Stock Analysis Report
 
Global Payments Inc. (GPN) : Free Stock Analysis Report
 
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