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Gibraltar (ROCK) Gains From Renewables, Growth Pillars & Buyouts

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Zacks Equity Research
·4 min read
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Strengthening of the Renewable Energy & Conservation business, along with solid three-pillar value creation strategy has been aiding Gibraltar Industries Inc. ROCK. In addition, solid U.S. housing market momentum has been adding to its bliss.

The company impressed investors with better-than-expected results in 11 of the trailing 14 quarters. During the first nine months of 2020, its earnings and sales gained 20.9% and 9.6%, respectively, from the corresponding period of 2019. Adjusted operating margin also improved 110 basis points for the first nine months of 2020 from the comparable prior-year period driven by the above-mentioned tailwinds, product and service mix, better price material cost management, as well as operational excellence.

Owing to strong performance, the company’s shares have gained 90.2% over the past six months, outperforming the Zacks Building Products – Miscellaneous industry and S&P 500 composite’s 27% and 16.5% rally, respectively.



Moreover, earnings estimates have risen over the past few weeks, suggesting that sentiments surrounding Gibraltar are in the positive direction. Over the past seven days, the Zacks Consensus Estimate for 2021 earnings has been revised 7% upward. This signifies bullish analysts’ sentiments.

Here are a few factors that are driving this Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

What’s Working in Favor?

Solid Renewable Energy and Conservation Business: The company remains encouraged by long-term market prospects of both Renewable Energy and Conservation businesses. Solar energy has become a cost-effective option for most part of the United States, despite the tariffs being levied on imported PV panels, which is worrisome for the industry. This segment generated revenues of $128.3 million for third-quarter 2020, up 9.8% year over year. The upside can be primarily attributed to growth in Renewable Energy and previous acquisitions in the Conservation business, offset by a slowdown in cannabis and hemp markets. Segment backlog grew 28% year over year owing to strong end-market demand in renewable energy, strength in the fruit and vegetable market, along with increasing activity in the cannabis market.

Three-Pillar Value Creation Strategy: This strategy is focused on three core tenets: Business Systems, Portfolio Management and Acquisitions, and Organizational Development. Business Systems comprises operational excellence and product innovation. This pillar reviews Gibraltar's monthly business performance, implementation of key investments, IT operating and digital systems performance, as well as new product and services innovation. Amid the pandemic, it invested more in digital and IT processes, as well as tools like SAP implementations, CRM initiatives, along with a variety of e-commerce platforms.

Through the second pillar, the company remains focused on optimizing the business portfolio, and ensures sustainable investment of human and financial capital to provide profitable growth, while expanding customer relations as well as market reach. Notably, solid contribution from Thermo, Delta Separations and Apeks buyouts has been delivering growth.

Lastly, the third pillar of the strategy is Organizational Development. Organizational Development primarily focuses on talent development, design and structure of organization. In a nutshell, these above-mentioned strategies have helped the company generate strong financial results, make more efficient use of capital and deliver higher shareholder returns.

Solid Housing Market Momentum: Declining mortgage rates, and demand for more space and amenities to accommodate work from home as well as at-home learning have led to a surge in homebuying and home improvement projects. This will definitely lead to higher demand for Gibraltar’s products. Notably, net sales in the segment grew 20.1% from the year-ago period to $151.7 million for third-quarter 2020. The upside was primarily due to solid activity in the home improvement market.

Other Stocks to Consider

Other top-ranked stocks in the same space include Construction Partners, Inc. ROAD, Quanex Building Products Corporation NX and Owens Corning Inc. OC.

Construction Partners, a Zacks Rank #1 (Strong Buy) stock, has an expected earnings growth rate of 18% for the current fiscal year.

Zacks #1 Ranked Quanex’s fiscal 2021 earnings are expected to rise 11.3%.

Owens Corning — a Zacks Rank #2 company — delivered a trailing four-quarter earnings surprise of 69.1%, on average.

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Owens Corning Inc (OC) : Free Stock Analysis Report
 
Quanex Building Products Corporation (NX) : Free Stock Analysis Report
 
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Construction Partners, Inc. (ROAD) : Free Stock Analysis Report
 
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