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Apogee (APOG) Bets on Favorable End-Market Demand, Cost Cuts

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Zacks Equity Research
·5 min read
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On Jan 14, we issued an updated research report on Apogee Enterprises APOG. The company is poised to gain from its solid bidding and order activities, as well as strong demand in construction activities. Efforts to boost market share and expand into newer geographies and markets are commendable. Moreover, cost-reduction initiatives will likely fuel margin growth significantly.

Apogee reported third-quarter fiscal 2021 adjusted earnings per share of 90 cents compared with the prior-year quarter’s 57 cents. The quarterly results benefited from effective cost management, solid cash-flow performance as well as increased profitability across its business segments.

Segments Poised to Grow on Strong Order Backlog

Apogee expects to report solid results in the upcoming quarters backed by the stabilization in its end markets as well as in the economy, after a prolonged period of pandemic-related shutdowns. The Architectural segments are likely to gain from healthy project backlog in the long lead-time business.

Notably, the Architectural Services segment continues to win new projects and is focused on building strong order backlogs. Backed by its robust project pipeline, the company projects backlog growth in the ongoing quarter as well. This is likely to drive the top and bottom lines for at least the next two years.

The Large-Scale Optical segment is gaining from customers’ resumption of operations as evident from the positive orders and sales trend, lately. The Framing Systems segment will continue to benefit from the optimization of operations, solid execution and efforts to lower costs. Consequently, Apogee anticipates to report stellar top- and bottom-line results in the upcoming quarter. In addition, the company’s segments have the potential to increase its market share, expand into newer geographies and markets, and introduce fresh products.

Favorable End Markets to Stoke Growth

Apogee has exposure in various projects across different sectors, including healthcare, education, and government and multifamily housing, as well as a growing renovation business. Employment growth, improvement in the architectural billing index and pick-up in industrial activity are infusing hope for the company’s business in the near term. Apart from this, various government stimulus measures are providing support for the company’s construction end markets.

Cost Reduction to Drive Margins

Apogee continues to focus on strategy to diversify its revenue streams, explore growth opportunities, and enhance the efficiency and productivity of operations. This positions the company well to deliver stable growth and profitability. It has initiated several operational improvements, including cost reductions, integrated product management and pricing strategies, and supply-chain efficiencies. These are expected to deliver more than $40 million cost savings during fiscal 2021, in turn, boosting overall operating margins.

Healthy Balance Sheet Bodes Well

Apogee generated record free cash flow of more than $100 million during the fiscal third quarter. Additionally, Apogee completed a sale-leaseback transaction for one of its facilities for cash proceeds of $24 million. It also resumed share repurchases and amended term loan by extending the maturity by three years. These factors are likely to strengthen the company’s financial position. With solid cash flow and a healthy balance sheet, it intends to ramp up capital expenditure in the days to come. At the end of the fiscal third quarter, the company’s total debt stood at $168 million, down from the $218 million witnessed at the end of fiscal 2020. Apogee will utilize its excess free cash flow and undrawn revolving credit facility of $235 million to further reduce debt.

Price Performance

Apogee’s shares have appreciated 63.3% over the past six months, outperforming the industry’s growth of 38.3%.



Zacks Rank & Other Stocks to Consider

Apogee currently carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the Industrial Products sector include AGCO Corporation AGCO, Crown Holdings, Inc. CCK and Ball Corporation BLL. While AGCO flaunts a Zacks Rank #1 (Strong Buy), Crown Holdings and Ball Corp carry a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has a long-term earnings growth rate of 13.2%. The stock has appreciated 88.7% in a six months’ time.

Crown Holdings has a long-term earnings growth rate of 5%. Shares of the company have rallied 42.8% in the past six months.

Ball Corp has a long-term earnings growth rate of 5%. Over the past six months, the company’s shares have gained 29.5%.

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