AECOM (ACM): what the price assumes

In the published model solve dated 2026-Q2, anchored at $66.58, AECOM (ACM) is priced for +10.9% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-09-07 · Exported: 2026-09-09 · Source: https://boothcheck.com/report/ACM

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 9% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

The price is justified by relative-multiple; asset-based/earnings-power/growth-DCF land below the price.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Relative Families that call it expensive: Asset, Earnings, Growth

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.0%); the inversion above states its own rate.

Per-Model Detail (n=14)

Solvency

Bullet Takeaways

• AECOM sells hours rather than assets, and how the work is contracted matters more than how much of it there is: 38% of revenue comes on cost-reimbursable terms where the client carries cost variance, 37% of revenue under guaranteed-maximum-price arrangements, and 25% of revenue on fixed price where an estimating error is the contractor's problem.
• The gap between reported profit and collected cash is the live risk, with about $410 million of free cash flow emerging from $1.02 billion of trailing operating profit, partly because some of that profit rests on claims where "the amount has not been approved by the customer".
• Third-quarter results are scheduled for August 10, 2026, and the design book-to-burn ratio matters more in that release than the headline number.

Bull Case

Mature is the correct label here, and it should change how every number below is read. This is not a company whose price needs rapid expansion to make sense, and it is not being asked to deliver any. What it is asked to do is keep converting engineering talent into billings at a decent return on the modest capital the work requires. The 10-K describes the model without decoration: "Our business focuses primarily on providing fee-based knowledge-based services." Income comes from billing employee time and controlling cost. There is no plant to depreciate and no inventory cycle to finance.

The returns confirm that the structure is doing its job. Trailing return on equity runs 22.3% on a book value of $17.57 per share, and return on invested capital of 11.3% clears the 9.1% cost of capital appropriate to a business with this risk profile. That spread is the entire argument for owning a services firm: every dollar the company keeps earns more than the dollar costs. At today's price of $70.58 the market pays about 11 times trailing operating profit and implies that profit slowly shrinks, by roughly 1.7% a year over the next five years. The bar is not high.

How the work is contracted is the second structural point, and it is the one most investors skip. Cost-reimbursable work accounts for 38% of revenue, and on those contracts the client absorbs cost variance rather than the contractor. Guaranteed-maximum-price arrangements add another 37% of revenue, capping what the client can be charged while leaving AECOM defined upside on savings. Only 25% of revenue sits in fixed-price work, where an estimating error becomes a loss. The fee structure on the reimbursable side is disclosed plainly: "Other contracts include a base fee component plus a performance-based award fee." Three-quarters of the book carrying something other than pure fixed-price exposure is materially less estimating risk than the word "construction" suggests.

Reported profitability understates the position, because the revenue line is inflated by money that never belonged to AECOM: "These costs are passed through to clients and, in accordance with industry practice and GAAP, are included in our revenue and cost of revenue." Measured that way AECOM keeps a 6.6% operating margin. Tetra Tech, the closest peer that reports on revenue net of subcontractor costs, reached 14.3% in fiscal 2025 on that basis, up about 50 basis points from 13.8% the prior year, per its own annual filing. Among the same peers Jacobs runs 4.5% on $13.2 billion of revenue and Fluor is negative at the operating line on $15.2 billion. Within the group that actually does this work, AECOM is neither the thinnest operator nor the one taking losses.

Management's account of why it wins is unglamorous and, unusually, checkable: "We believe that we are well positioned to compete in our markets because of our reputation, our cost effectiveness, our long-term client relationships, our extensive network of offices". The behavioural evidence sits in the guidance record. Since 2008 the company has raised its outlook on 26 separate occasions and cut it twice. That is a team which has learned to set a number it can clear, worth something in an industry where the opposite habit is common. Capital allocation follows the same conservative pattern: the share count has fallen roughly 2.4% a year over the four years to March 2026, so the earnings base spreads across fewer shares each year without any acquisition story needed to make the arithmetic work.

Bear Case

Start with the sentence a holder would rather skip. AECOM's own 10-K states that "the technical and professional aspects of some of our services generally do not require large upfront capital expenditures and provide limited barriers against new competitors". That is the company describing, in its own risk disclosure, the absence of a moat. Engineering and program-management talent is portable, offices are cheap to open, and the client relationships management cites as a strength are relationships with procurement departments that run competitions.

The federal channel makes the point concrete. The filing notes that "The federal government has also awarded federal contracts based on a low-price, technically acceptable criteria emphasizing price over qualitative factors, such as past performance." When the buyer stops paying for quality, reputation ceases to be an economic asset and becomes a qualification hurdle everyone eventually clears. That procurement style is how a services firm's profitability gets ground down over a decade without any single dramatic event.

Then there is the distance between profit and cash. Trailing operating profit of $1.02 billion produced about $410 million of free cash flow, a conversion rate the annual filing explains structurally: "The Company's timing of revenue recognition may not be consistent with its rights to bill and collect cash from its clients." Days sales outstanding drifted the wrong way as well, to 74 days at September 30, 2025 from 70 days a year earlier. Part of the reported profit also rests on estimates the customer has not agreed to, and the 10-K is unusually candid about it: "Revenue recognition relating to claims is highly judgmental as the amount has not been approved by the customer and it requires the Company to prepare estimates of amounts expected to be recovered." It adds that "Changes in recovery estimates can have a material effect on the amount of revenue recognized." Profit that depends on a future negotiation carries a probability attached to it.

That is where the price stops looking inexpensive. The methods that work from what the business actually generates in cash, rather than from what it reports, leave today's price sitting at roughly twice what they support, and the lenses built on book value and the returns earned on it read it the same way. Only comparisons with other companies say the stock is cheap, and those comparisons apply sector ratios to a revenue and EBITDA base swollen by pass-through billings. If cash conversion stays where it is, the reported profit those comparisons are applied to is not the profit an owner receives. The price does not require expansion, which is genuinely reassuring; it does require that the reported earnings base is real and durable.

Backlog is the bull's favourite number and it deserves the caveat the company supplies itself: "We calculate backlog without regard to possible project reductions or expansions or potential cancellations until such changes or cancellations occur." A record backlog measured that way says what has been awarded, not what will be executed at the assumed profitability. Meanwhile a quarter of revenue still sits in fixed-price contracts where an estimating miss lands entirely on AECOM. The balance sheet can absorb a normal year of that: net debt sits at about 1.8 times operating profit, and operating profit covers the interest bill about 5.7 times over. That is comfortable, and it is also not much room to carry a large project write-down and an acquisition in the same year. This is a bear case about grind, not collapse.

Valuation

The clearest way to see what is being bought here is to ask what today's price requires. At $70.58, observed on July 25, 2026, the market pays about 11 times trailing operating profit. Set against a cost of capital of roughly nine percent, that multiple embeds no expansion at all. What the price implies is a mild contraction, about 1.7% a year over five years, and that assumption sits in the lower half of what comparable engineering and consulting firms trade on. Against AECOM's own recent record, a modest decline is not demanding; the demanding part would be sustaining it for a long time, not hitting it next year.

Revenue is the wrong denominator for this company, and the filing says why: "Because these pass-through revenues can change significantly from project to project and period to period, changes in revenue may not be indicative" of the underlying business. AECOM books $16.0 billion of revenue and keeps a 6.6% operating margin on it, but a meaningful slice of that top line is money collected on behalf of clients and paid straight out to subcontractors. Any lens that multiplies revenue by a sector ratio therefore produces a figure with no information in it. The lenses that matter are the ones anchored on profit and on cash.

Those lenses disagree sharply, and the disagreement is the finding. Comparisons with other companies, whether on earnings or on EBITDA at sector reference ratios, land above today's price. Everything anchored on AECOM's own economics lands below it: capitalizing free cash flow at the cost of equity leaves the price at close to twice what that stream supports, and the book-value-and-returns lens reads it as sitting more than half again above what it defends. One method threads the needle. Valuing the normalized operating profit of the last five years as a no-growth perpetuity, with one-time charges added back, arrives essentially at today's price. That is the honest centre of the picture: buy here and you are paying close to what the current earnings stream is worth assuming it never grows, with the peer comparisons supplying the optimism and the cash-based measures supplying the caution.

Compared with the firms doing the same work, that 6.6% operating margin sits mid-pack rather than at either extreme. Jacobs, the closest rival by size, runs 4.5% on $13.2 billion of revenue. KBR, a smaller competitor, earns 10.0% on $7.65 billion, and Booz Allen holds 9.2% on $11.2 billion, versus $16.0 billion of revenue at AECOM. Fluor, the one large peer running negative at the operating line, does it on $15.2 billion. Nobody in this group is currently being paid for growth, which is why the cheap-versus-peers reading needs care: the peers are cheap for related reasons.

The balance sheet is what makes the low bar credible. Operating profit covers the interest bill about 5.7 times, net debt sits at roughly 1.8 times operating profit, and the business is not consuming cash. Around 2.4% of the share count has been retired each year over the four years to March 2026, which is the kind of capital return that only appears when the money is genuinely there. One sensitivity is worth naming: a single extra percentage point of cost of capital moves the required profit trajectory by more than five points. For a firm whose customers are largely governments funding long-dated infrastructure, the level of long rates does more to this valuation than the backlog headline does.

Catalysts

The most recent print was the strongest set of orders the company has reported. Total backlog reached a record $26.2 billion, up 8% year over year, with a book-to-burn ratio of 1.2 in the design business, the twenty-second consecutive quarter above 1.0. Net service revenue of $1.95 billion was up 2% on a constant-currency basis. Management raised its fiscal 2026 adjusted EBITDA and adjusted earnings outlook alongside those results, while leaving the full-year free cash flow expectation unchanged.

Those two facts sit in mild tension, and the tension is the thing to follow. Record orders and a raised profit outlook would normally pull the cash outlook up with them. Holding it flat while backlog grows is what happens when new work consumes working capital before it pays, which is ordinary in this industry and is also the mechanism that separates AECOM's reported profit from the money an owner eventually receives.

The next checkpoint is dated. AECOM intends to release third quarter fiscal 2026 results after the U.S. market closes on August 10, 2026, with the conference call the following morning. Three things in that release carry real information: whether design book-to-burn holds above 1.0 for a twenty-third quarter, whether the full-year cash outlook survives contact with the second half, and whether days sales outstanding keeps lengthening.

Peer Cohorts (Per Segment, With Filing Citations)

AECOM Capital (reported)

• TTEK (TETRA TECH, INC.)
• FY2025 10-K: …firms by weighing the quality, innovation and timeliness of the firm's service versus its cost to determine which firm offers the best value. Our competitors vary depending on end markets and clients, and often we may only compete with a portion of a firm. We believe that our principal competitors include the…
• FY2025 10-K: …on revenue, net of subcontractor costs, improved approximately 50 basis points to 14.3% in fiscal 2025 37 compared to 13.8% in fiscal 2024. The improved operating margin was primarily due to our continued focus on high-end consulting services and improved project execution. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL…
• J (JACOBS SOLUTIONS INC.)
• FY2025 10-K: …the world including technology, consulting and engineering firms. Typically, no single company or companies dominate the markets in which we provide services, and often we partner with our competitors or other companies to jointly pursue projects. AECOM, Tetra Tech, WSP, Arcadis, Bechtel, Arup, Endava, Exponent, Mott…
• FY2025 10-K: …and other transactions to maximize long-term value by continuing to reshape our portfolio to higher value solutions and accelerating profitable growth strategy. The Company has recently made the following acquisitions, strategic investments and divestitures: Page 6 • On September 27, 2024, Jacobs completed the…
• FLR (FLUOR CORPORATION)
• FY2025 10-K: …of liquidity and maximization of yield. These investments may include money market funds, bank deposits placed with highly-rated financial institutions, repurchase agreements that are fully collateralized by U.S. Government-related securities, high-grade commercial paper and high quality short-term and medium-term…
• FY2025 10-K: …joint ventures or other teaming arrangements. Typically, we prefer to enter into these arrangements with companies with whom we have worked previously. These arrangements are generally made to strengthen our market position or technical skills, or where the size, scale or location of the project directs the use of…
• KBR (KBR, Inc.)
• FY2025 10-K: …order within our Mission Technology Solutions segment. This increase was offset primarily by changes in the primary components of our working capital. The primary components of our working capital accounts are accounts receivable, contract assets, accounts payable and contract liabilities. In fiscal 2025, the…
• FY2025 10-K: …2023-01-01 2023-12-29 0001357615 us-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember kbr:AffinityProjectMember 2026-01-02 0001357615 us-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember kbr:AspireDefenceProjectMember 2026-01-02 0001357615 us-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember…
• FCN (FTI CONSULTING, INC)
• FY2025 10-K: …false 2025 FY 0000887936 P2Y http://fasb.org/us-gaap/2025#RestructuringAndRelatedCostIncurredCost P2Y http://fasb.org/us-gaap/2025#AccountsPayableAndAccruedLiabilitiesCurrent http://fasb.org/us-gaap/2025#AccountsPayableAndAccruedLiabilitiesCurrent iso4217:USD xbrli:shares iso4217:USD xbrli:shares fcn:segment…
• FY2025 10-K: …was primarily due to higher forgivable loan issuances, compensation and income tax payments, which was partially offset by an increase in cash collections. Days sales outstanding ("DSO") was 88 days at December 31, 2025 and 97 days at December 31, 2024. Free Cash Flow was an inflow of $93.6 million and $360.2 million…
• BAH (BOOZ ALLEN HAMILTON HOLDING CORPORATION)
• FY2025 10-K: …by the federal tax authorities. The Company is currently under federal audit by the Internal Revenue Service ("IRS") for fiscal years 2016, 2017 and 2019-2021. The other jurisdictions currently open or under examination are not considered to be material. It is difficult to predict the ultimate outcome or the timing…
• FY2025 10-K: …including financial services, health and life sciences, energy, and technology. Financial and Other Highlights During fiscal 2025, the Company generated year over year revenue growth of 12%, primarily driven by strong demand for our solutions, outcomes, and services, as well as an increase in headcount to meet that…
• G (GENPACT LIMITED)
• FY2025 10-K: …operations ("AOI"). The CODM uses both revenue and AOI to review the monthly and quarterly performance of the Company's operating segments. The CODM uses AOI, which is gross margin and G&A expenditures, to assess capacity for investments in each segment, including sales capacity, delivery resources, offerings and…
• FY2025 10-K: …by entering into the 2022 Credit Agreement on December 13, 2022. The term loan and revolving credit facility under the 2022 Credit Agreement expire on December 13, 2027. Borrowings under the 2022 Credit Agreement bear interest at a rate equal to, at the election of the Company, either Adjusted Term SOFR (which is the…
• IT (Gartner, Inc.)
• FY2025 10-K: …common stock. The Board authorized incremental share repurchases of up to an aggregate additional $5.8 billion of the Company's common stock from February 2021 to September 2025. The Board also authorized incremental share repurchases of up to an additional $500 million in January 2026. The Company adopted its share…
• FY2025 10-K: …entities to start capitalizing software costs when (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed and the software will be used to perform the function intended. The amendments are effective for annual periods with fiscal years…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.