ABM Industries: Solid Growth Offset by Margin Stagnation and Leverage from WGNSTAR Deal Supports Neutral (Hold) Rating

ABM Industries, the Industrials sector company, was revisited by a Wall Street analyst today. Analyst Joshua Chan from UBS downgraded the rating on the stock to a Hold and gave it a $51.00 price target.

Joshua Chan has given his Hold rating due to a combination of factors related to ABM’s profitability outlook and balance sheet flexibility. He notes that while the company is achieving better-than-usual organic revenue growth, management’s guidance points to operating margins staying roughly unchanged through fiscal 2026, as cost savings are largely offset by pricing pressure and lower-margin new contracts. In his view, business services stocks typically re-rate when solid growth is paired with consistent margin expansion, and the absence of that margin uplift tempers the upside. Reflecting this, he also trims his earnings forecasts to account for weaker core margins and higher interest costs.

At the same time, Chan highlights that the planned acquisition of WGNSTAR, struck at a higher valuation multiple than ABM’s own, is likely to be slightly dilutive to earnings in the near term and will push leverage above 3x. The transaction effectively consumes most of the company’s expected free cash flow, leaving less room for shareholder-friendly actions such as buybacks or additional deals in the short run. With reduced capital deployment flexibility and no clear path to margin expansion, he sees the risk/reward profile as balanced at current levels. His lowered price target, based on ABM’s long-term average valuation multiple and higher projected net debt, further supports a Neutral (Hold) stance rather than a more constructive rating.

Based on the recent corporate insider activity of 53 insiders, corporate insider sentiment is negative on the stock. This means that over the past quarter there has been an increase of insiders selling their shares of ABM in relation to earlier this year.