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Apogee (APOG) Up 23% YTD After 35% Drop in 2018: What's Next?
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Fiscal 2019 has been so far so good for Apogee Enterprises, Inc. (APOG - Free Report) , with the stock gaining on the back of solid bidding and order activity, robust and increasing backlog, and continued favorable outlook for the North America commercial construction market. The stock suffered a setback in fiscal 2018, primarily owing to reduced volume due to project timing delays and inflationary pressures, resulting from tariffs.
Shares of the company have declined 34.7% in fiscal 2018 compared with the industry’s decline of 25.7%. However, the stock staged a comeback this year, having rallied 22.5% year to date, outperforming the industry’s growth of 13.6%.
What Dragged the Stock Down?
Apogee witnessed lower revenues and profits in the Architectural Framing Systems segment in third-quarter fiscal 2019 (ended Dec 1, 2018), reflecting reduced volume due to project timing delays. It expects this near-term impact to continue in fourth-quarter fiscal 2019. For fiscal 2019, Apogee reduced the revenue growth outlook to 6-7% from the previously mentioned 8-10% due to lower projected revenues in Architectural Glass and Architectural Framing Systems segments. It also trimmed the earnings per share guidance for the fiscal year to $3.13 from $3.13-$3.33 stated earlier.
Further, Apogee revised the operating margin guidance to 8.4% from the previous 8.3-8.8%. It witnessed inflationary pressure, and cost hike in freight and lumber. Also, tariffs on aluminum and steel will likely dampen the company’s margins.
Factors Favoring the Stock in Fiscal 2019
Apogee’s segments have opportunities to increase market share, expand into new geographies and markets, and roll out products. These growth opportunities are supported by the solid bidding and order activity, robust and increasing backlog, and continued favorable outlook for the North America commercial construction market. The North America commercial construction market is poised to grow throughout fiscal 2020, as market activity continues to reflect solid growth in all the regions and sectors across the United States, in particular, office and institutional building segments, both of which are core markets for Apogee. Moreover, office employment and office vacancy rates, and job growth exhibit a positive momentum, which confirms the favorable trend in the non-residential construction market.
Apogee will likely benefit from the focus on strategy to grow and diversify the business, which will strengthen operations and drive profitability. The company’s continued focus on investment in projects will also drive growth and capacity, and improve productivity.
Regarding acquisitions, Apogee is primarily focusing on the integration of EFCO to recognize margin opportunities. The company is moving forward with synergy goals by leveraging supplier relationships and driving on-time delivery. Further, it expects robust award activity from the Sotawall acquisition, which bodes well for fiscal 2019 and beyond.
We believe that these factors will eventually benefit Apogee’s results and drive the share price further.
DMC Global has a long-term earnings growth rate of 20%. The stock has risen 35% year to date.
CECO has a long-term earnings growth rate of 15%. The company’s shares have gained around 9% so far this year.
Grainger has a long-term earnings growth rate of 12.4%. Its shares have moved up 3% year to date.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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Apogee (APOG) Up 23% YTD After 35% Drop in 2018: What's Next?
Fiscal 2019 has been so far so good for Apogee Enterprises, Inc. (APOG - Free Report) , with the stock gaining on the back of solid bidding and order activity, robust and increasing backlog, and continued favorable outlook for the North America commercial construction market. The stock suffered a setback in fiscal 2018, primarily owing to reduced volume due to project timing delays and inflationary pressures, resulting from tariffs.
Shares of the company have declined 34.7% in fiscal 2018 compared with the industry’s decline of 25.7%. However, the stock staged a comeback this year, having rallied 22.5% year to date, outperforming the industry’s growth of 13.6%.
What Dragged the Stock Down?
Apogee witnessed lower revenues and profits in the Architectural Framing Systems segment in third-quarter fiscal 2019 (ended Dec 1, 2018), reflecting reduced volume due to project timing delays. It expects this near-term impact to continue in fourth-quarter fiscal 2019. For fiscal 2019, Apogee reduced the revenue growth outlook to 6-7% from the previously mentioned 8-10% due to lower projected revenues in Architectural Glass and Architectural Framing Systems segments. It also trimmed the earnings per share guidance for the fiscal year to $3.13 from $3.13-$3.33 stated earlier.
Further, Apogee revised the operating margin guidance to 8.4% from the previous 8.3-8.8%. It witnessed inflationary pressure, and cost hike in freight and lumber. Also, tariffs on aluminum and steel will likely dampen the company’s margins.
Factors Favoring the Stock in Fiscal 2019
Apogee’s segments have opportunities to increase market share, expand into new geographies and markets, and roll out products. These growth opportunities are supported by the solid bidding and order activity, robust and increasing backlog, and continued favorable outlook for the North America commercial construction market. The North America commercial construction market is poised to grow throughout fiscal 2020, as market activity continues to reflect solid growth in all the regions and sectors across the United States, in particular, office and institutional building segments, both of which are core markets for Apogee. Moreover, office employment and office vacancy rates, and job growth exhibit a positive momentum, which confirms the favorable trend in the non-residential construction market.
Apogee will likely benefit from the focus on strategy to grow and diversify the business, which will strengthen operations and drive profitability. The company’s continued focus on investment in projects will also drive growth and capacity, and improve productivity.
Regarding acquisitions, Apogee is primarily focusing on the integration of EFCO to recognize margin opportunities. The company is moving forward with synergy goals by leveraging supplier relationships and driving on-time delivery. Further, it expects robust award activity from the Sotawall acquisition, which bodes well for fiscal 2019 and beyond.
We believe that these factors will eventually benefit Apogee’s results and drive the share price further.
Stocks to Consider
Apogee currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same sector are DMC Global Inc. (BOOM - Free Report) , CECO Environmental Corp. and W.W. Grainger, Inc. (GWW - Free Report) . All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DMC Global has a long-term earnings growth rate of 20%. The stock has risen 35% year to date.
CECO has a long-term earnings growth rate of 15%. The company’s shares have gained around 9% so far this year.
Grainger has a long-term earnings growth rate of 12.4%. Its shares have moved up 3% year to date.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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