Here's Why You Should Retain Gibraltar (ROCK) Stock Now
Gibraltar Industries Inc. ROCK is well poised to benefit from its solid Three-Pillar growth strategy. Also, the robust Infrastructure segment’s prospect, improving solar module supply, and supply-chain optimization initiatives bode well.
This industrial and building products manufacturer and distributor is also benefiting from material cost alignment, field operations efficiency, business mix and 80/20 initiatives.
The Zacks Rank #3 (Hold) company’s shares gained 64.8% in a year versus the Zacks Building Products - Miscellaneous industry, Zacks Construction sector and S&P 500 Index’s 62.2%, 54% and 30.4% respective rallies.
Image Source: Zacks Investment Research
Further, the Zacks Consensus Estimate for 2024 earnings per share (EPS) of $4.73 moved up from $4.64 in the past seven days, solidifying the growth trend. This reflects 15.1% year-over-year growth on 4.5% higher sales. The solid price performance and analysts’ optimistic view testify that Gibraltar has excellent growth potential in the long run.
The upside is supported by its solid VGM Score of A, contributed by a Growth Score of A and a Value and Momentum Score of B.
Yet, 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 potential risks.
Let’s discuss the factors in detail.
Major Growth Contributor
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 improved lately as the fed government paused the interest rate hikes. Improving demand and supply-chain issues are likely to aid the company. ROCK’s Residential business has been performing pretty well amid challenges in the last year. 2023 net sales increased 6.2% from 2022, driven by recent acquisitions, expanded market presence and the positive impact of participation gains.
The company expects residential end markets to build enough volumes in 2024. Channel inventory destocking appears complete and creates demand in the company’s served end markets. Adjusted operating and EBITDA margins are also improving by 130 and 140 basis points, respectively, 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 going forward.
Potential Renewable Markets: The company remains encouraged by the long-term market prospects of the renewable energy business. Renewable 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.
In 2023, adjusted operating and EBITDA margins expanded 430 and 460 bps, respectively, despite sales declining as fundamental operating systems continued to improve and scale. Backlog also increased 20.9% year over year. New order bookings and pipelines will remain robust in 2024.
Gibraltar expects the backlog to be positive in 2024. It also expects revenue and margin growth for the year, considering the improved supply chain management and insourcing initiatives.
Potential Risks
Top-Line Related Challenges: Gibraltar has been witnessing material and labor-related challenges as well as inventory right-sizing and project delays. In 2023, total net sales declined 0.9% year over year due to market price adjustments in the Residential segment, continued channel inventory right-sizing, and project delays in the Renewables and Agtech segments related to solar module availability, project permitting, and project rescoping.
Particularly in Renewables, revenues decreased 12.4% from 2022 due to module supply and local permitting delays, which impacted the timing of contracted and active projects. The Residential segment was also affected by market price adjustments made in prior quarters in response to lower commodity prices and channel inventory right-sizing. Agtech unit’s net sales were down 14.2% as the commercial business experienced customer delays in project starts.
Seasonality & Customer Concentration: Gibraltar’s business has been historically subjected to seasonal influences, with lower sales typically in the first and fourth quarters of each year due to reduced activity in the building industry. Moreover, the company is exposed to customer concentration risks as it derives a significant portion of its sales from only a handful of customers.
Stocks to Consider
Some better-ranked stocks in the same space are:
Advanced Drainage Systems, Inc. WMS currently sports a Zacks Rank #1 (Strong Buy). WMS delivered a trailing four-quarter earnings surprise of a whopping 37.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Advanced Drainage Systems’ 2024 EPS has increased to $6.19 from $5.88 over the past 30 days.
Knife River Corporation KNF, a Zacks Rank #1 company, has seen an upward estimate revision for 2024 EPS to $3.50 from $3.33 over the past 60 days.
KNF’s earnings surpassed the Zacks Consensus Estimate in the last reported quarter by 80%.
Armstrong World Industries, Inc. AWI currently sports a Zacks Rank #1. AWI delivered a trailing four-quarter earnings surprise of 13.1%, on average.
The Zacks Consensus Estimate for Armstrong World Industries’ EPS for 2024 has increased to $5.74 from $5.52 over the past 30 days.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Advanced Drainage Systems, Inc. (WMS) : Free Stock Analysis Report
Gibraltar Industries, Inc. (ROCK) : Free Stock Analysis Report
Armstrong World Industries, Inc. (AWI) : Free Stock Analysis Report
Knife River Corporation (KNF) : Free Stock Analysis Report
