Fiscal 2020 has started on a good note for Apogee Enterprises, Inc. APOG, with forecast-toppings earnings and revenues in first-quarter fiscal 2020. The stock is gaining on the back of solid bidding and order activity, robust backlog, and continued favorable outlook for the North America commercial construction market. However, reduced volumes due to project timing delays and rising costs might weigh on margins.
Below, we briefly analyze the company's potential growth drivers and possible headwinds.
Factors Favoring the Stock in Fiscal 2020
Stellar Q1 Results: Apogee delivered adjusted earnings per share of 58 cents in the fiscal first quarter, surpassing the Zacks Consensus Estimate of 53 cents. The company generated revenues of $355 million, which also comfortably beat the Zacks Consensus Estimate of $325 million.
Positive Growth Projections: The Zacks Consensus Estimate for earnings is currently pegged at $3.04 for fiscal 2020, indicating year-over-year growth of 2.7%. For fiscal 2021, the Zacks Consensus Estimate for earnings is pegged at $3.54, highlighting year-over-year growth of 16.3%.
Return on Assets (ROA): Apogee currently has a ROA of 7.6%, while the industry's ROA is 4.3%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Price Performance: Shares of the company have appreciated 11.2% over the past month compared with the industry’s gain of 4.7%.
Apogee’s segments have opportunities to increase market share, expand into new geographies and markets, and roll out products. These growth opportunities are supported by the solid bidding and order activity, robust and increasing backlog, and continued favorable outlook for the North America commercial construction market. The North America commercial construction market is poised to grow throughout fiscal 2020, as market activity continues to reflect stellar growth in all the regions and sectors across the United States, in particular, office and institutional building segments, both of which are core markets for Apogee.
Apogee will likely benefit from its focus on strategy to grow and diversify the business, which will strengthen the company’s operations and boost profitability. The company’s continued focus on investment in projects will fuel growth and improve productivity.
Regarding acquisitions, Apogee is primarily focusing on the integration of EFCO to recognize margin opportunities. The company is moving forward with synergy goals by leveraging supplier relationships and driving on-time delivery. The company remains optimistic about the long-term prospects for this business.
Few Headwinds to Counter
Apogee recorded lower revenues and profits in the Architectural Services segment in the fiscal first quarter, reflecting reduced volume due to project timing delays. The segment’s margins will likely be affected by softer volumes and less favorable project maturity compared with fiscal 2019 levels. For fiscal 2020, Apogee has reduced its revenue growth outlook to 1-3% from the prior guidance of 10%. It projects adjusted earnings per share of $3.00-$3.20 for the current fiscal year compared to the earlier guidance of $3.48-$3.68.
Further, Apogee has revised its operating margin guidance for fiscal 2020. It anticipates operating margin of 8.2-8.6% as against the previous estimate of 8.9-9.4%. The company’s margins might be unfavorably impacted by start-up costs related to the strategic growth investment in Architectural Glass, as well as increased corporate costs from higher legal expenses.
At present, investors might want to hold on to the stock, as it has ample prospects to outperform peers in the near future.
Apogee Enterprises, Inc. Price and Consensus
Apogee Enterprises, Inc. price-consensus-chart | Apogee Enterprises, Inc. Quote
Zacks Rank & Stocks to Consider
Apogee currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the Industrial Products sector are Flowserve Corporation FLS, Roper Technologies, Inc. ROP and CIRCOR International, Inc. CIR, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Flowserve Corporation has an estimated earnings growth rate of 25% for the ongoing year. The company’s shares have gained 28.5% in the past year.
Roper Technologies has an expected earnings growth rate of 9.4% for the current year. The stock has appreciated 34.8% in a year’s time.
CIRCOR International has a projected earnings growth rate of 7.6% for 2019. The stock has rallied 16.6% over the past year.
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