On Mar 24, 2017, we issued an updated research report on Apogee Enterprises, Inc. (APOG Quick QuoteAPOG - Free Report) . Focus on productivity improvement, cost control and improvements in volume, mix, project margins along with operating leverage will sustain margin expansion. However, negative impact of foreign exchange and weakness in the international markets remain headwinds.

Notably, Apogee’s third-quarter fiscal 2017 earnings per share improved 24% year over year to 78 cents per share but fell short of the Zacks Consensus Estimate of 79 cents. The company reported total revenue of $274 million, which grew 15% year over year but missed the Zacks Consensus Estimate of $277.5 million.

Apogee raised earnings per share outlook for fiscal 2017 to $2.85–$2.95 from the previous guidance of $2.80–$2.90. The upbeat guidance came on the back of solid execution of strategies to improve operational performance, productivity and project selection. The company maintained outlook for revenue growth of approximately 10% for fiscal 2017.

However, this guidance does not include the impact of the Sotawall acquisition that will add approximately $15 million to fourth-quarter revenues at a break-even operating margin on account of purchase accounting costs. Apogee’s acquisition of Sotawall Limited, a leading designer and fabricator of high-performance, unitized curtainwall systems for commercial construction projects in North America will help the company grow in Canada. Further, the buyout will increase its share of demand in certain U.S. markets where it did not have a strong presence, while adding unique curtainwall products to offerings.

Apogee continues to focus on achieving top-line growth on the back of product launches, expansion in both domestic and international markets along with entry into the new architectural markets. Focus on productivity improvement, cost control and improvements in volume, mix, project margins and operating leverage will also aid margin expansion.

However, unfavorable foreign currency effect will continue to affect Apogee’s results in the near term. The company continues to witness increased international competition on large projects due to headwinds from the significant strengthening of the U.S. dollar. Further, weak Brazilian market conditions and slower Canadian business continue to be the near-term headwinds for Architectural Framing Systems segment.



Apogee’s share price gain of 33.2% has outperformed the Zacks categorized Glass Products sub industry’s increase of 28.6% in the past one year.

However, Apogee’s stretched valuation is another concern. Its trailing 12-month price earnings (P/E) ratio is 19.98 while the Zacks categorized Glass Products subindustry average trailing 12-month P/E ratio is lower at 10.73. This implies that the stock is overvalued.

Apogee currently carries a Zacks Rank #3 (Hold).

Stocks that Warrant a Look

Better-ranked stocks worth considering in the broader sector include ACCO Brands Corporation (ACCO Quick QuoteACCO - Free Report) , Brady Corporation (BRC Quick QuoteBRC - Free Report) and Parker-Hannifin Corporation (PH Quick QuotePH - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ACCO Brands has an average positive earnings surprise of 24.74% in the past four quarters. Brady Corporation and Parker-Hannifin Corporation have a respective average positive earnings surprise of 20.84% and 12.44% in the same time frame.

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