Shares of NCI Building Systems Inc. have been performing well of late. The company is one of the major integrated manufacturers of metal products for the North American non-residential construction industry with a market capitalization of $1.15 billion.

Shares of this Zacks Rank #1 (Strong Buy) stock carries a VGM score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Additionally, the stock carries a long-term earnings growth rate of 10%.  If you haven’t taken advantage of the share price appreciation yet, the time is right for you to add the stock as NCI Building looks promising and is poised to carry the momentum ahead.

Strong Fiscal 2016

Although NCI Building’s adjusted earnings of 28 cents per share for fourth-quarter fiscal 2016 declined 10% year over year, its overall earnings in fiscal 2016 logged a growth of 69% year over year to 71 cents per share. The company delivered growth on all fronts – revenue, gross margins and adjusted EBITDA – driven by the strategic realignment of its commercial, manufacturing and supply chain groups that improved operating leverage across the company.

Upbeat Guidance

NCI Building is anticipated to fare better in fiscal 2017 than fiscal 2016 in terms of revenues and adjusted EBITDA, on the back of its ability to leverage expected market growth, the ongoing cost savings initiatives and opportunities to expand the IMP businesses. Similar to previous years, performance in second-half 2017 will be stronger than the first half.

For first-quarter fiscal 2017, NCI expects revenues in the range of $370–$390 million and gross margins in the range of 21.0–23.5%. For fiscal 2017, NCI Building estimates revenues to be in the range of $1.75–$1.85 billion and adjusted EBITDA to be in the range of $175–$205 million.

Positive Earnings Surprise History

NCI Building delivered an average positive earnings surprise of 87.26% in the last four quarters.

Estimates Northward Bound

For NCI Building, one estimate has been revised upward in the last 60 days, while no downward movement has been witnessed. Consequently, the Zacks Consensus Estimate has moved north 9% to 97 cents for fiscal 2017 and for fiscal 2018, the estimate has moved up 6% to $1.23.

Healthy Growth Expectations

The Zacks Consensus Estimate for fiscal 2017 is at 97 cents, reflecting a 37.32% year-over-year growth. The Zacks Consensus Estimate for fiscal 2018 is pegged at $1.23, a 26.15% year-over-year growth.

Growth Drivers Intact

A look at the company’s revenue performance in the past five years depicts a clear upward trend.

The momentum will continue to be driven by growth in construction, acquisitions and backlog growth. Further, its one of the fastest-growing building products in the U.S., 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.

NCI Building’s earnings performance has also been impressive in the past five years.  Growth in its top line along with cost savings initiatives will continue to boost margins.



Ahead of the Industry

NCI Building has outperformed the Zacks categorized Building & Construction Products – Miscellaneous subindustry over the past one year. The stock gained 68.4%, clearly outpacing the industry’s gain of 42.5%.

The strong price performance is backed by its overall performance in fiscal 2016. During fiscal 2016, NCI Building completed the integration of its insulated metal panels (IMP) businesses, and witnessed double-digit growth and higher margin opportunities in the IMP product portfolio. 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, backed by growth in low rise non-residential construction markets and the company’s persistent efforts to cut down costs.

Stock is Undervalued

NCI Building has a P/B ratio of 4.1x, compared with the industry average of 21.7x. Based on this ratio, the stock seems undervalued.

Other Stocks to Consider

Some other favourably placed stocks worth considering in the construction sector include Gibraltar Industries, Inc. (ROCK Quick QuoteROCK - Free Report) , Thor Industries, Inc. (THO Quick QuoteTHO - Free Report) and Chicago Bridge & Iron Company N.V. .

Gibraltar Industries has a positive average earnings surprise of 67.30% in the last four quarters. It has witnessed a 1% increase in its earnings estimates in the past 30 days. It currently carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Thor Industries also sports a Zacks Rank #1 and generated a positive average earnings surprise of 24.08% in the trailing four quarters. Chicago Bridge & Iron Company delivered an average positive earnings surprise of 2.76% in the last four quarters. The stock carries a Zacks Rank #2 (Buy).

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