ABM trades over 30% cheaper than its sector on earnings because the market treats it as an office cleaner and ignores aviation, industrial and tech growth. Its dividend has grown ~60 years with a ~30% payout and recovering free cash flow. I expect valuation gap to close in ten years unless a major macro event occurs.

Well , I recently started doing some in-depth research on a company that I feel no one ever talks about. I rarely see her. To be honest, the more I researched, the more I found that I really admire what I see in this name.

It's another giant in dividend payouts. It has an incredibly stable business model . Its valuation is extremely cheap , and the whole package looks very attractive at current levels.

This company is ABM Industries, and its trading symbol is ABM.

Now, if that name isn't familiar to you, it's because ABM doesn't sell any flashy consumer gadgets or develop any kind of high- tech artificial intelligence software. In fact, it handles some of the most important facility and infrastructure solutions for the largest operations, companies, and institutions in the entire world.

However , despite managing core businesses with multi-year recurring contracts worth hundreds of millions of dollars, its stock has been heavily restrained in recent years, which I feel may be setting the stage for some kind of sudden explosion in the future. Something I think might happen.

Now, I understand why it was largely ignored. We really need to start with this work first. This is not just a basic cleaning company , although the market has recently treated it as such; ABM generates more than $9 billion in annual revenue.

This is done through five very important divisions, the largest of which is the business and industry sector, which accounts for about half of their total sales. Its current percentage is approximately 44% .

It covers commercial engineering, facility maintenance, even parking management and more. There is also the manufacturing and distribution sector. It accounts for about 21% of sales, or about one-fifth of the company's size there.

It serves industrial plants, as you know, and distribution centers. This is a big sector for them. Even cleanroom environments. Now, the third sector is aviation. I see a lot of potential there.

It is actually growing at a very good rate. But it currently represents only about 14% of sales, generating a few hundred million across major airport lounges while also offering a variety of services, such as cabin cleaning and even passenger assistance.

Currently, they are also undergoing a major international expansion at Heathrow Airport. The remainder comes from technical solutions, at a rate of 11%. This includes dealing with high-voltage power systems and the infrastructure of electric vehicles.

I know, who would have thought that? It is indeed extremely important. I also think they will continue to see a very sharp rise in demand there in the very long term . Apart from that, there is also the education sector, at approximately 10%, which is really dedicated to serving public school districts and even universities.

Again, we are talking about long- term, fixed service contracts, because these airports, factories, distribution centers, offices, and schools must operate around the clock. They cannot simply eliminate these essential maintenance and engineering teams in an attempt to save costs.

They are the backbone of the vital services here, and they really keep these facilities running every day.

Throughout all of this, ABM is acquiring a sophisticated technological character, and this has quietly become their biggest growth engine ever . In fact, this is precisely one of the reasons that made me start taking an interest in this company .

It is listed within their manufacturing and technology solutions sectors. During the first nine months of this year, he made approximately $750 million. This came exclusively from semiconductors, microgrids, and data centers.

I know it's rather surprising , isn't it? But that recorded organic growth of 26% and gross growth of 40% when accounting for acquisitions. All of this was achieved while delivering double-digit operating profit margins , which is extremely important.

Now, in semiconductors alone , revenues have increased by 65% since the beginning of the year, just as you probably would have expected . But it was more than that. It was over 120% overall, I think, after their acquisition of WGN Star, which was a big deal.

For this field. ABM works directly within semiconductor factories , providing cleanroom services, tooling installation, and even precision equipment testing for major chip manufacturers.

In the field of microgrids, their Raven Volt brand offers turnkey power flexibility and battery storage systems, which have grown nearly fourfold since the acquisition, generating another $300 million since the beginning of the year.

As for data centers, they now also provide UPS power maintenance and vital cooling solutions to keep these data centers running and actually operating. Again, this is just another example here of how ABM has found a way to enter these new and diverse markets and sectors, and almost work its way into them to learn about the most vital needs of these companies.

Let's produce it ourselves at a high standard. Let's present it to them, and then, you know, let's make some long- term, irreplaceable contracts, where these companies will not be able to do without our services.

It really is just a brilliant strategy that they've followed for a very long time . And in this particular case, once again, this is what has attracted me to the stock recently.

The reason I started looking for them is that they did it again. They saw the AI boom happening, the whole technological revolution that's going on now, and they said to themselves, "Hey, let's adapt here again and start offering, you know, to connect their micronetworks ."

Let's serve their chip factories. As you know, even the operation and maintenance of these giant AI data centers . This was all in fact another example of how resilient ABM was and how well it could adapt to changing trends in the macroeconomy and the entire surrounding environment .

However, despite all this, and despite the amazing business structure they have, the market still treats this company as if it is stuck in the past, like an old-fashioned school and office cleaner , even though it is not at all.

Historically, that was great for them. They had a long and impressive track record of success, with the stock rising, you know, steadily over decades. The stock only declined during events caused by the macroeconomy, and even then, the stock price always experienced a significant rebound shortly after those declines.

But recently, we have seen the same kind of situation here where the stock has remained largely unchanged over the past five years. The stock has been significantly impacted by what I would call the post-pandemic downturn in commercial real estate , where not only are we currently facing high interest rates , but hybrid work has also become widespread, and vacancy rates have risen, leading analysts to believe that this sector may be turning into a dying industry for them.

However, don't misunderstand me, these office concerns are real, but the market has generalized the judgment to the entire business of the company and completely ignored what is happening in its industrial, aviation and technology divisions, where in fact there is a lot of success, growth and future potential.

This has created an undeniable valuation gap, at least in my opinion, with ABM stock now trading at over 30% cheaper than the rest of the sector based on earnings. Again, this is a huge discount for a company with a long history of dividend payouts. We don't usually see something like this.

Speaking of which, these dividends have been raised for nearly six consecutive decades. We are talking about going beyond the stagflation of the 1970s, the crash of '87, the dot- com bubble, the Great Recession, and even the lockdowns of 2020 and beyond.

It is a dividend distribution that has never stopped growing. Currently, this return is equivalent to only about 2.3%. It is not the extremely high yield that usually tends to excite new investors seeking dividends.

However, there are two things that should be noted. Firstly, this is still one of the highest rates of return for the company over the past decade. Therefore, it's not a bad return.

Historically, investors have been perfectly content to receive returns much lower than that. Secondly, you also have to consider that the real power of dividends like these comes from their growth potential.

It comes from investing in dividend growth. Stocks that consistently grow their dividends over time can actually give you some of the biggest dividend payouts in the market if you are willing to invest in them for the long term.

For example, in the early 2000s, this stock was trading at around $10 per share. Because they increased dividends every year without fail, any investor who held the stock during that period would now receive a huge return of more than 11 or 12%.

It's a huge return, for sure. Best of all, these are dividend payouts that are expected to continue growing in the future, especially since the dividend payout ratio is still low at only about 30% .

ABM is known for significantly increasing those distributions at any given time. Last year, for example, distributions grew by nearly 20%. This is an enormous increase . Again, it all comes down to the strength of the core business, which we know has faced some difficulties recently.

But overall, sales continue to rise every year. Although profits were affected by all the macroeconomic issues , as well as new acquisitions, analysts largely expect net income and free cash flow to recover in the coming years.

In fact, we are already seeing a lot of this momentum taking shape right now. In the last quarter, for example, ABM posted record sales again, while net income jumped 19% and earnings per share 27% , with management even raising its forecast for the full year.

The truth is that the bigger story here is that over the past two years, ABM has spent lavishly on upgrading its internal systems and rolling out new software, causing its free cash flow to decrease by about $35 million.

But with those upgrades now complete and spending finally declining, its cash flow is poised for a major recovery. Since the beginning of the year, cash flow has reached nearly $200 million, an increase of more than $150 million compared to the same period last year.

Analysts expect this to continue in the coming years, which means that dividend payouts are very safe in my opinion, and will continue to grow probably for the next six decades in a row as well.

This does not mean that we will not encounter some obstacles along the way. Again, this is something we have seen happen many times, even throughout the company's own history. Even today, there are all sorts of new problems to pay attention to, such as the stagnation in business offices and high interest rates.

There is also a rise in jet fuel costs due to the war in the Middle East , which could weaken demand in their aviation sector if airlines try to cut costs because of it . The company may experience project delays.

Disruptions can occur at any time. They also deal with some labor union issues for their huge workforce of 100,000 employees. But this is the main reason why you are able to get a large discount on a stock like this, something you probably wouldn't have been able to get under other circumstances.

I truly believe that if we look at the next ten years , it is impossible to continue trading at this low valuation, unless perhaps a massive macro event such as a major recession or global catastrophe occurs.

But in such a scenario, the entire market would also decline. It will not be limited to a stock like this, which has great long-term resilience . Anyway, that's my point of view on the matter.

I just wanted to share my quick thoughts about a new stock I've been researching and find very interesting. It's high on my watch list that I check the most.