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3 Factors That Underscore Gibraltar's (ROCK) Solid Prospects

Zacks Equity Research

Gibraltar Industries, Inc.’s ROCK shares have been rallying, courtesy of enduring benefits from four-pillar value creation strategy, solid backlog and improved housing market fundamentals. Also, strengthening of infrastructure business is another tailwind.

Shares of this leading provider of industrial and building market products have gained 31.7% in the past six months compared with the Zacks Building Products – Miscellaneous industry’s 17.9% rally. Also, it has outperformed the S&P 500’s 9.1% rise in the said period. The price performance was backed by the company’s robust earnings surprise history. Gibraltar’s earnings have surpassed the Zacks Consensus Estimate in 11 of the trailing 14 quarters. Its revenues also surpassed the consensus mark in four of the trailing seven quarters.

Earnings estimates for 2020 have moved 4.4% north in the past 60 days. This positive trend indicates analysts’ bullish sentiments and justifies the company’s Zacks Rank #1 (Strong Buy). These factors reflect on robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let us discuss other factors that make this stock a profitable pick.

What Makes the Stock an Attractive Pick?

Solid Backlog: Gibraltar  — which shares space with Foundation Building Materials, Inc FBM, Installed Building Products, Inc IBP and Simpson Manufacturing Co., Inc SSD in the same industry — has impressive revenue prospects, given solid backlog level. Backlog as of Sep 30, 2019 was $241 million, up 45% year over year. The upside can be attributed to its three businesses — Renewable Energy, Conservation and Infrastructure.

Four-Pillar Value Creation Strategy: Gibraltar is progressing well operationally as well as financially on the back of its four-pillar value creation strategy that comprises operational excellence, product innovation, portfolio management and acquisitions.

The first pillar or operational excellence focuses on reducing complexity, adjusting costs and simplifying its product by focusing on the best as well as biggest opportunities, (the 80) along with eradicating complexity related to less profitable opportunities (the 20). Having completed the major part of this 80/20 initiative, the company expects to drive organic growth by developing new and innovative products, with simultaneously focusing on selling as well as marketing efforts. Owing to these initiatives, Gibraltar's adjusted operating income improved 120 basis points (bps) in the third quarter of 2019.

Product innovation (second pillar) focuses on patent protection that is developed internally or acquired through product lines. Moreover, the company’s trade-focused selling and marketing techniques as well as leveraging of engineering, manufacturing and installation core competencies bode well. During the third quarter, innovative products (patented products) contributed 11.1% to total third-quarter net sales, up 10.4% from the year ago quarter’s period. This along with portfolio management (third pillar) focuses on higher-margin businesses with strong organic growth opportunities, which are likely to increase profitability in the future.

Acquisitions, as a fourth pillar, are a key component in Gibraltar’s transformation. The company is committed to acquire those companies that have attractive end markets, with unique value propositions and patented products or technologies.

On Aug 30, 2019, it acquired Apeks Supercritical that holds a leading position in extraction processing with a strong leadership team, patented technology as well as leading-edge clean extraction technology in the United States. This will enable Gibraltar to strengthen its footing in the U.S. solar renewable energy market.

Solid Underlying Housing Market Fundamentals: The U.S. housing market fundamentals have started gaining strength since the beginning of 2019 on lower mortgage rates, solid job market along with moderate rise in home prices and favorable demographics This improved fundamentals point toward continually strong demand in 2020, which is anticipated to benefit Gibraltar’s business.

Notably, the company expects its repair, roofing and remodeling activity to drive growth in the upcoming quarters as well.

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