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Gibraltar Rides on Strategic Initiatives & Solid End Markets

Zacks Equity Research

Gibraltar Industries Inc. ROCK is well positioned to reap benefits from the four-pillar value creation strategy. Also, strength in the Renewable Energy & Conservation business bodes well for it earnings prospects.

Notably, shares of the company have gained 10.1%, outperforming the Zacks Building Products – Miscellaneous industry and S&P 500 composite’s 5.9% and 2.4% growth, respectively, in the past six months.

Gibraltar has been performing pretty well of late, given effective cost management techniques and the above-mentioned tailwinds, irrespective of higher costs and soft Residential Products and Industrial segments.

Estimates for 2019 earnings have moved 0.4% up over the past 60 days, reflecting analysts’ optimism surrounding the company’s solid prospects.

This positive trend justifies its Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s delve deeper into the factors that are attributing to its growth trajectory.

Four-Pillar Strategy to Drive Growth: Gibraltar’s four-pillar value creation strategy, which includes operational excellence, product innovation, portfolio management and acquisitions, is a major driver earnings growth. Notably, the major part of this strategy has been completed and the company has started benefiting from the same. Going forward, it expects the initiative to improve its performance.

During the first six months of 2019, adjusted earnings grew 4.1% year over year on the back of enduring benefits from 80/20 simplification. Also, revenues from innovative products (patented products) were up 9% in the second quarter from the year-ago period.

These strategies, which have helped Gibraltar to generate strong financial results, make more efficient use of capital and deliver higher shareholder returns. This is likely to benefit the upcoming quarters as well.

Long-Term Market Growth Prospects Solid: Gibraltar is encouraged by long-term market prospects of both renewable energy and conservation businesses.

Per a report from Solar Energy Industries Association and GTM Research, solar energy has become a cost-effective option for most part of the United States, despite increased tariffs on imported PV panels. Meanwhile, robust growth in the cannabis market is also adding to the bliss. This is evident from the current sales trend of its Renewable Energy and Conservation segment. In first-half 2019, the segment’s sales grew almost 11% owing to strong demand for its greenhouse solutions and 4% contribution from SolarBos.

Strong End-Market Projections & Upbeat View: Gibraltar has been witnessing strong market prospects, which are reflected in its backlog numbers. During the second quarter, backlog increased an impressive 30% from the year-ago period. Solid end-market prospects, given strong backlog level, are likely to boost its performance going forward.

Backed by the above-mentioned tailwinds, Gibraltar anticipates third-quarter revenues in the range of $288-$298 million, suggesting growth from $280.1 million reported in the prior-year period. Adjusted earnings are projected within 84-91 cents per share, indicating a significant improvement from 71 cents reported in the year-ago quarter.

In 2019, the company expects to generate more than $1 billion revenues. Also, it projects adjusted earnings in the range of $2.40-$2.55 per share, pointing to improvement from $2.14 reported in 2018. Adjusted operating income is likely to be between $110 million and $117 million, suggesting growth from the 2018 figure of $101.4 million. Adjusted operating margin is expected in the range of 10.6-11.1% (implying an increase from 10.1% registered in 2018).

Solid VGM Score: Gibraltar has an impressive VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with a VGM Score of A or B, and a Zacks Rank #1 or 2, make a solid investment pick.

Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A. Also, the stock carries a Value Score of B, which is suitable for investors looking for value investing.

Other Stocks to Consider

Other top-ranked stocks in the same space include Construction Partners, Inc. ROAD, PGT Innovations, Inc. PGTI and Aegion Corporation AEGN, each sporting a Zacks Rank #1.

Construction Partners and PGT Innovations surpassed earnings estimates in three of the trailing four quarters, with the average positive surprise being 9.2% and 17.2%, respectively.

Aegion’s long-term earnings are expected to grow 10%.

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Aegion Corporation (AEGN) : Free Stock Analysis Report
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