UBS’ Best Stocks In The AI, Growth & Low Rates Era: Top 29 US Stocks

27. AECOM (NYSE:ACM)

Number of Hedge Fund Investors In Q2 2024: 32

UBS’ Sector Rating: Neutral

Sector: Industrial

AECOM (NYSE:ACM) is one of the biggest engineering and consulting services companies in the world. Since it’s a contractor, AECOM’s (NYSE:ACM) hypothesis is heavily dependent on two key factors. The first is the state of the construction industry and the second is the contract mix for its revenue. On the former front, the sluggish nature of the global construction industry has led to weak share price performance as AECOM’s (NYSE:ACM) shares are up 17.24% year to date. However, US construction activity has picked up following the Fed’s interest rate cut in September, and further easing can lead to tailwinds. On the latter front, AECOM’s (NYSE:ACM) revenue is divided across fixed price, full price, and reimbursement contracts. Reimbursement and full-price contracts account for 77% of AECOM’s (NYSE:ACM) revenue as of nine months ending in June 2024. Any shift towards fixed-price contracts is harmful while full-price contracts carry the best outcome for the firm. Additionally, AECOM (NYSE:ACM) can also benefit from the billions of dollars in infrastructure spending unlocked by the Biden Administration’s infrastructure and semiconductor bills.

AECOM (NYSE:ACM) is also focused on integrating digital technologies across its operations. Here’s what management shared during the Q3 2024 earnings call:

“For instance, the adoption of digital tools is growing across the company. As we detailed during our December Investor Day, we aim for 5% to 15% of our work hours to be delivered through scripts and code that we create by leveraging our extensive digital libraries. This will increase the capacity and extend our capabilities of our teams. We’re also transforming how we work through AI by integrating AI into specific areas of our business, such as our bid and proposal process.

Although it is early to fully measure the potential benefits of these technologies, the signals are quite positive. Overall, these investments are designed to strengthen our company and help us exceed our 17% long-term margin target.”