Balanced View on Apogee

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On June 6, 2014, we issued an updated research report on Apogee Enterprises, Inc. (APOG). The leader in technologies for design and development of value added glass products, services and systems reported an 80% increase in its fourth-quarter fiscal 2014 earnings to 27 cents per share. The improvement was particularly driven by increased sales,better pricing and project margins.

For fiscal 2015, Apogee guides revenue growth in the range of 15% to 20% and expects earnings per share to be in the band of $1.35 to $1.50. This guidance is based on an increasing backlog, commitments and bidding pipeline as well as the improving commercial construction market.

The outlook for the U.S. commercial construction market based on McGraw-Hill forecast is of high-single-digit growth in 2015. Apogee hopes to outperform commercial construction markets by around five percentage points and expects previous acquisitions to be accretive to earnings in fiscal 2015.

Apogee anticipates capital spending for fiscal 2015 to be about $40 million. The spending will aid product development capabilities and productivity as well as positive free cash flow. In addition, the company predicts gross margin for fiscal 2015 to be approximately 23%.

Apogee targets $1 billion in revenues and 10% in operating margins by fiscal 2016. Improvements in volume, mix, project margins and operating leverage will drive earnings. The company intends to add new capacities and fund acquisitions. Further, Apogee’s strategy to expand through geographic expansion, domestic acquisition and addition of new products will also drive growth.

Regarding the timing of the backlog, Apogee anticipates approximately $314 million or 95% of backlog to be delivered in fiscal 2015, and the balance 5% or approximately $15 million in fiscal 2016 and beyond. The company expects strong backlog growth in the first quarter of fiscal 2015 driven by a growing pipeline of project commitments and awards as well as a high level of bidding activity.

On the flip side, The American Institute of Architects’ (AIA) Architecture Billings Index (ABI), increased to 49.6 in Apr 2014, from 48.8 in March. Though the index showed improvement, any reading below 50 signifies a decline in billings. Furthermore, weak public construction spending remains the most significant risk to a non-residential recovery.

Moreover, macroeconomic uncertainties, political issues and volatility in foreign exchange rates remain challenges for Apogee in the near term.

Apogee currently carries a Zacks Rank #4 (Sell).

Key Picks from the Sector

Some better-ranked stocks worth considering in the sector include Atlas Copco AB (ATLKY), Blount International Inc. (BLT) and Dover Corporation (DOV), all of which sport a Zacks Rank #2 (Buy).
 

Read the Full Research Report on DOV
Read the Full Research Report on APOG
Read the Full Research Report on ATLKY
Read the Full Research Report on BLT


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