On Dec 15, 2016, we issued an updated research report on NCI Building Systems Inc. , one of the major integrated manufacturers of metal products for the North American non-residential construction industry. The company is well poised to benefit from positive trend in non-residential construction activity, cost savings, acquisitions and robust backlog growth.

Recently, NCI Building reported its fourth-quarter fiscal 2016 results. Earnings dipped 10% on a year-over-year basis to 28 cents in the quarter, however, for the overall fiscal 2016 performance, earnings surged 69% to 71 cents.  The improved fiscal 2016 performance was driven by the strategic realignment of its commercial, manufacturing and supply chain groups that augmented operating leverage across the company. On a consolidated basis, NCI Building’s backlog was up 4% to $515.9 million at the end of the fiscal fourth quarter. This is a very healthy backlog to carry forward into fiscal 2017, which will support revenue growth.

NCI Building is anticipated to fare better in fiscal 2017 than fiscal 2016 in terms of revenues and adjusted EBITDA, due to the company's ability to leverage expected market growth, the ongoing cost-savings initiatives and opportunities to expand the IMP businesses. For first-quarter fiscal 2017, NCI anticipates revenues in the range of $370 to $390 million and gross margins in the range of 21.0% to 23.5%. For fiscal 2017, NCI Building estimates revenues to be in the range of $1.75 to $1.85 billion and adjusted EBITDA to be in the range of $175 to $205 million.

The company had initiated two key cost savings initiatives in manufacturing consolidation and the streamlining of certain fixed and indirect ESG&A costs in 2015 and 2016, respectively. In fiscal 2017, these two initiatives are anticipated to drive an incremental cost savings of $10 million and $30 to $40 million in cost savings by the end of 2018. Under the optimizing manufacturing footprint initiative, the company till date has added two new facilities while shutting down six facilities. Under the ESG&A initiative, the company has restructured its commercial operations and consolidated certain activities which were deemed suitable.

Further, NCI Building remains optimistic about the CENTRIA acquisition, which confirms its leadership position while expanding the range of its cutting edge proprietary product offerings in the architectural metal panel market.

The main indicators for non-residential construction activity continue to trend positive and NCI Building expects low-rise non-residential construction starts to continue to grow in the range of 3% to 6%.  As one of the fastest-growing building products in the country, the IMP business now represents approximately 24% of the company’s revenue and 31% of EBITDA. Given its strong distribution network and the continuing advancement of energy code requirements in the U.S. NCI Building anticipates the product to log growth in double digits during 2017 and 2018. This will enable the company to continue outperforming the non-residential markets.

The Zacks Rank #2 (Buy) stock has delivered an average positive earnings surprise of 87.26% in the last four quarters. Year to date, NCI Building Systems has recorded an average return of 26.5%, clearly outperforming the Zacks categorized Building and Construction Products – Miscellaneous industry's return of 5.2%. The strong price performance is backed by its overall performance in fiscal 2016. Moreover, the company continues to utilize its free cash flow to pay down debt and buy back shares. Going forward, the price momentum will continue, driven by growth in low rise non-residential construction markets and the company’s persistent efforts to cut down costs.

Other Stocks to Consider

Some other stocks worth a look in the same industry include Gibraltar Industries, Inc. (ROCK Quick QuoteROCK - Free Report) , Simpson Manufacturing Co., Inc. (SSD Quick QuoteSSD - Free Report) and United Rentals, Inc. (URI Quick QuoteURI - Free Report) .

Gibraltar Industries has delivered an average positive earnings surprise of 67.30% in the last four quarters and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Simpson Manufacturing, which also sports a Zacks Rank #1, has an average positive earnings surprise of 18.77% in the last four quarters. United Rentals, which carries a Zacks Rank #2, has delivered a positive average earnings surprise of 7.03% in the last four quarters.

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