Valmont (VMI) Poised on Strategic Actions Amid Headwinds
On Jun 14, we issued an updated research report on steel pipe and tube company, Valmont Industries VMI.
Valmont has outperformed the Zacks categorized Steel-Pipe and Tube industry year to date, partly driven by its forecast-topping earnings performance in the last two quarters. The company's shares gained roughly 9% in this period, while the industry saw a 10.3% decline.
Valmont, in its first-quarter 2017 call, noted that it is encouraged by improved demand in certain markets, substantiated by second straight quarter of improved sales. Reconfirming the earnings, sales and cash guidance for the year, the company acknowledged that raw materials price volatility and weak fundamentals in farm economy, could still impact some businesses. However, it sees improvement across most of its end-markets.
While the prevailing external environment remains challenging for Valmont, the company should benefit from its restructuring actions, cost management and a focus on operational improvements. The restructuring actions are expected to improve its overall cost structure, thereby supporting its earnings in 2017.
Moreover, the company remains focused on mitigating the impact of raw material cost inflation through strategic measures including cost reductions and pricing actions.
Valmont should also gain from acquisitions and its efforts to boost its market position through investments towards developing its product line. The acquisition of leading Northern European engineered steel products maker – DS-SM A/S (rechristened Valmont SM A/S) – has enabled Valmont to cater to a wide range of industries.
Moreover, the acquisition of a majority stake in South Dakota-based AgSense has broadened Valmont’s portfolio in remote monitoring and control technology for agriculture. The purchase of American Galvanizing Company, a market leader in hot-dip galvanizing in the Northeast U.S., also expanded Valmont Coatings' network to 33 facilities in 6 countries around the world.
However, Valmont still faces certain challenges across some of its businesses. It remains exposed to a weak agricultural economic environment. The company’s North American irrigation business continues to be affected by lower commodity prices which are impacting farm income. Lower farm income, in turn, may affect equipment purchases by farmers.
Limited growth in infrastructure investment in Europe is also affecting the company’s Engineered Support Structures segment. The company also remains exposed to volatility in the prices of certain raw materials such as steel and zinc.
Valmont is a Zacks Rank #3 (Hold) stock.
Valmont Industries, Inc. Price and Consensus
Valmont Industries, Inc. Price and Consensus | Valmont Industries, Inc. Quote
Stocks to Consider
Better-ranked companies in the steel space include Schnitzer Steel Industries, Inc. SCHN, Universal Stainless & Alloy Products, Inc. USAP and MRC Global Inc. MRC. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Schnitzer Steel carries a Zacks Rank #1 and has expected earnings growth of 56.5% for the current year.
Universal Stainless sports a Zacks Rank #2 (Buy) and has expected earnings growth of 127% for the current year.
MRC Global has expected long-term earnings growth of 15% and carries a Zacks Rank #2.
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