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Zacks Industry Outlook Highlights Simpson Manufacturing, Frontdoor, Owens Corning, and PGT Innovations

For Immediate Release

Chicago, IL – March 1, 2022 – Today, Zacks Equity Research discusses Simpson Manufacturing Co., Inc. SSD, Frontdoor, Inc. FTDR, Owens Corning OC and PGT Innovations, Inc. PGTI.

Industry: Building Products

Link: https://www.zacks.com/commentary/1874278/4-top-building-products-to-buy-on-thriving-industry-prospects

Strong demand arising from solid momentum in the housing market, and repair and remodel and "do-it-yourself" (DIY) activities have been benefiting the companies under the Zacks Building Products - Miscellaneous industry. In addition to stable end-market demand, benefits from geographic and product diversification strategies, operational excellence as well as accretive buyouts are expected to provide them with more strength. Simpson Manufacturing Co., Inc. Frontdoor, Inc. Owens Corning  and PGT Innovations, Inc. are set to benefit from the increasing demand arising from strong housing/R&R activities.

Industry Description

The Zacks Building Products - Miscellaneous industry primarily comprises manufacturers, designers, and distributors of home improvement and building products like ceiling systems, doors, and windows as well as flooring and metal products. Some of the industry players provide solutions to rehabilitate the aging infrastructure, primarily pipelines in wastewater, water, energy, mining and refining industries.

The companies also manufacture expansion joints and structural bearings, ventilation products, ground mounted solar racking and commercial greenhouses as well as mail storage (solutions including mailboxes along with package delivery products). Companies in this industrial cohort also rent out equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners as well as government entities.

3 Trends Shaping the Future of the Building Products Industry

Robust Housing & Repair & Remodeling Markets: Positive momentum of the housing market backed by the rising need for more work-at-home space is still acting as a major tailwind for the industry participants. Precisely, strong demand stemming from an improved residential construction market has been a major boon for the industry participants.

Meanwhile, working from home or stay-at-home orders amid the COVID-19 pandemic have encouraged consumers to take on more DIY and other home improvement projects. So, industry participants have been gaining strength from a sharp rise in housing and repair and remodeling activity.

Operational Excellence, Product Innovation & Acquisitions: The industry participants have been carrying out strong cost-saving initiatives like business consolidation, system implementations, plant/branch closures, improvement in the global supply chain and headcount reductions to boost profitability. Industry participants have also been strategically investing in new products, sales and support services, digitally-enabled solutions as well as advanced manufacturing capabilities to boost revenues. The companies are also following a systematic acquisition strategy to supplement organic growth, and expand access to additional markets as well as products.

Supply Chain & Inflationary Woes: Inflationary headwinds with respect to transportation cost, material cost and energy cost owing to supply chain disruptions have been a pressing concern. Also, rising labor costs are compressing margins. This is dampening the companies' operating performance. Precisely, rising costs related to steel, asphalt, resin and other input materials are compressing margins. Although the companies have been working to recover higher costs through various price increases, they expect this ongoing volatility in material and transportation costs to persist in the near term as well.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Building Products – Miscellaneous industry is a 28-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #91, which places it at the top 36% of more than 250 Zacks industries.

The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry's positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. Since January 2022, the industry's earnings estimates for 2022 have been revised upward to $3.32 per share from $3.29.

Before we present a few stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.

Industry Lags S&P 500& Sector

The Zacks Building Products – Miscellaneous industry has underperformed the Zacks S&P 500 composite and the broader Zacks Construction sector over the past year.

Over this period, the industry has declined 6.9% against the S&P 500's rally of 12.4% and the broader sector's 2.6% gain.

Industry's Current Valuation

On the basis of the forward 12-month price to earnings, which is a commonly used multiple for valuing building products' stocks, the industry is trading at 14.5X versus the S&P 500's 19.5X and the sector's 12.3X.

Over the past five years, the industry has traded as high as 19.1X, as low as 7X and at a median of 13.9X.

4 Building Product Stocks to Buy Now

We have selected four stocks from the Zacks universe of building products that currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Simpson Manufacturing Co.: This Pleasanton, CA-based company is an engineered structural connector and building solutions provider. SSD has been benefiting from higher sales volumes across many distribution channels, including higher sales in Europe partly due to foreign exchange, price and volume increases. It remains on track to meet strategic growth initiatives by 2025, after gaining solid traction throughout the year on expansion into five key markets — OEM, R&R/DIY, mass timber, concrete and structural steel.

The acquisition of Etanco Group (a leading designer, manufacturer and distributor of fixing and fastening solutions for the building construction market throughout Europe) further added to the tailwinds as Etanco's business model and core product offerings align well with Simpson. This will propel growth of the European business, including expansion into new geographies, sales channels and commercial building offerings.

Importantly, Simpson — which has gained 18.7% in the past year — has seen a 13.5% upward estimate revision for 2022 earnings over the past 30 days. This Zacks Rank #1 company's earnings for 2022 are expected to rise 5.9% from 2020.

Frontdoor: Based in Memphis, TN, Frontdoor provides home service plans across the United States. Higher renewal and direct-to-consumer revenues have been aiding the company's performance. Frontdoor's long-term vision along with its focus on digital-first services, driving demand growth, raising customer retention and tackling the pandemic-driven inflationary pressures by lifting prices dynamically and leveraging scale to mitigate short-term challenges are expected to drive growth.

Frontdoor, a Zacks Rank #2 stock, has declined 43.1% over the past year. That said, FTDR has seen an upward estimate revision for 2022 earnings over the past 30 days to $2.27 per share from $2.21.

PGT Innovations: This North Venice, FL-based company is one of the nation's leading manufacturers and suppliers of residential impact-resistant windows and doors. A diversified product portfolio to capture profitable growth in new construction and R&R channels, customer-centric innovation, manufacturing improvements, and a series of pricing actions in response to the rising cost pressure have been aiding the company.

Also, strategic acquisitions have been expanding its footprint into new regions, channels or products via advanced technologies, enhanced manufacturing or supply chain capabilities. These buyouts are aligned with growth priorities and are expected to grow shareholder value over the long term.

PGTI, a Zacks Rank #2 stock, has dropped 16.5% over the past year. That said, PGT Innovations has seen an upward estimate revision of 18.4% for 2022 earnings over the past 30 days to $1.67 per share. The company's earnings for 2022 are expected to increase 62.1%.

Owens Corning: Headquartered in Toledo, OH, Owens Corning produces and sells building material systems along with composite solutions. It has been benefiting from market-leading businesses, innovative products, and process technologies as well as capabilities. A positive momentum in residential end markets, particularly in the United States, improved manufacturing leverage and strong cost controls will likely help the company deliver solid results.

Owens Corning, a Zacks Rank #2 stock, has gained 11.9% over the past year. OC has seen an upward estimate revision of 7.9% for 2022 earnings over the past 30 days to $10.38 per share. The company's earnings for 2022 are expected to increase 11.7%.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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Owens Corning Inc (OC) : Free Stock Analysis Report
 
PGT, Inc. (PGTI) : Free Stock Analysis Report
 
Simpson Manufacturing Company, Inc. (SSD) : Free Stock Analysis Report
 
Frontdoor Inc. (FTDR) : Free Stock Analysis Report
 
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