Gibraltar (ROCK) Jumps 15% in a Month: What's Aiding the Stock
Gibraltar Industries Inc.‘s ROCK shares spiked 15% in a month versus the Zacks Building Products - Miscellaneous industry and S&P 500 index’s 1.2% and 1.8% fall, respectively.
This industrial and building products manufacturer and distributor is well poised to benefit from its solid Three-Pillar growth strategy and robust Infrastructure segment’s prospect. Improving solar module supply, increased volume and supply-chain optimization initiatives along with material cost alignment, field operations efficiency, business mix and 80/20 initiatives are added positives.
However, market price adjustments in the Residential unit, project delays in the Renewables and Agtech related to solar module availability, project permitting and rescoping, and continuous channel inventory right-sizing are significant concerns.
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Nonetheless, the Zacks Consensus Estimate for 2023 earnings of $3.96 per share moved up from $3.56 in the past 30 days. The upside is supported by its solid VGM Score of A. The solid price performance and analysts’ optimistic view testify that Gibraltar has excellent growth potential in the long run.
Let’s see what are the driving factors that are offsetting these positives.
Thee-Pillar Strategy: Gibraltar is progressing well, operationally and financially, on the back of its three-pillar growth strategy. The strategy is focused on three core tenets - Business Systems, Portfolio Management and Organizational Development. The first pillar, i.e., Business Systems, combines two of its previous strategic pillars, namely, operational excellence and product innovation. The second strategic pillar comprises Portfolio Management and Acquisitions. Through this pillar, the company is focused on optimizing its business portfolio. Lastly, the third pillar of the strategy is Organizational Development. The Organizational Development primarily focuses on talent development, design and structure of the organization.
Strong Residential Business Prospect: The Residential market has remained under pressure for the last few quarters due to high mortgage rates and affordability issues. Improving demand and supply chain issues will likely aid the company. ROCK’s Residential business has been performing pretty well amid challenges in the last few quarters. First-half net sales saw a 7.4% increase, driven by the Quality Aluminum Products acquisition and the positive impact of participation gains.
The company expects residential end markets to build enough volumes in the third quarter. Channel inventory destocking appears complete and creates demand in the company’s served end markets. Adjusted operating and EBITDA margins are also improving as volume rose, price cost was better aligned, and 80/20 initiatives and product line mix were favorable. ROCK expects these positives to strengthen the segment margins in the second half of the year.
Potential Renewable/Agtech Markets: The company remains encouraged by the long-term market prospects of the renewable energy business. Renewable’s revenues decreased in the past few quarters as customers remain in a holding pattern on existing and new projects as they look for improved visibility on solar panel availability. Nonetheless, the industry remains positive on the U.S. Department of Commerce's preliminary decision and getting through the Uyghur Forced Labor Prevention Act, or UFLPA, learning curve.
Meanwhile, on the botanical extraction front, the company remains optimistic about the legal cannabis market, which is expected to grow to $57 billion worldwide over the next 10 years (per a report by ArcView Market Research). In the second quarter of 2023, the backlog was sequentially up 16.3% and 6.3% year over year. Gibraltar expects backlog to be positive in the second half, year over year. It also expects revenue and margin growth in 2023, considering the improved supply chain management and insourcing initiatives. To focus its resources on the higher growth and more profitable growing business, the company divested its processing equipment business within Agtech.
Zacks Rank & Stocks to Consider
ROCK currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other top-ranked stocks in the same space are:
Summit Materials, Inc. SUM sports a Zacks Rank #1. SUM has a trailing four-quarter earnings surprise of 13.1% on average.
The Zacks Consensus Estimate for SUM’s 2023 sales and earnings per share (EPS) indicates rises of 7.1% and 23.6%, respectively, from the year-ago period’s levels.
EMCOR Group, Inc. EME flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 17.2%, on average.
The Zacks Consensus Estimate for EME’s 2023 sales and EPS suggests growth of 11.5% and 35.9%, respectively, from the year-ago period’s levels.
TopBuild Corp. BLD flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 14.1%, on average.
The Zacks Consensus Estimate for BLD’s 2023 sales and EPS indicates gains of 3.3% and 6.1%, respectively, from the year-ago period’s levels.
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