Earnings estimates have fallen sharply for
Quanex Building Products Corporation
) following disappointing first quarter results on March 7. It is a
Zacks Rank #5 (Strong Sell) stock.
Although shares have sold off since the Q1 report, the stock still
doesn't look cheap at 34x forward earnings. Investors may want to
hold off on this stock until earnings momentum improves.
Quanex Building Products manufactures engineered materials,
components and systems primarily for window and door original
equipment manufacturers (OEMs). It reports is operations in two
- Engineered Products, which makes window and door components
and other residential building products for OEMs, that primarily
serve the residential construction and remodeling markets.
- Aluminum Sheet Products, which are used in exterior housing
trim, fascias, roof edgings, soffits, downspouts and
Q1 Earnings Miss
Quanex delivered disappointing results for the first quarter of its
fiscal 2013 on March 7. The company reported an adjusted loss of 17
cents per share, which was below the Zacks Consensus Estimate
calling for a loss of 6 cents. It was also the company's third
straight earnings miss.
Net sales increased 15% to $185.7 million, driven by 7% growth in
Engineered Products and 29% growth in Aluminum Sheet Products.
Operating profits in the Engineered Products segment improved to
$2.8 million, but this wasn't enough to offset a $4.2 million
operating loss in the Aluminum Sheet Products division.
Despite a rebound in the housing market, management stated in the
Q1 press release that its expects U.S. window shipments will only
improve by approximately 5% this year. This prompted analysts to
revise their estimates significantly lower for both 2013 and 2014,
sending the stock to a Zacks Rank #5 (Strong Sell).
The Zacks Consensus Estimate for 2013 is now $0.35, down from $0.58
ninety days ago. The 2014 consensus has fallen from $1.02 to $0.65
over the same period.
You can see the big decline in earnings estimates over the last
several months in the company's 'Price & Consensus' chart:
Shares of NX are down more than 20% since the Q1 earnings release,
but shares still a look a bit pricey here. The stock currently
trades at 34x 12-month forward earnings, which is a significant
premium to its 10-year historical median of 14x and the industry
median of 20x.
Quanex Building Products also carries a long-term 'Underperform'
The Bottom Line
With declining consensus estimates and premium valuation, investors
may want to avoid Quanex Building Products until its earnings
momentum turns around. There are other stocks within the Building
& Construction - Miscellaneous industry, however, that
investors might want to consider based on their positive earnings
), for instance, both carry a Zacks Rank of 2 (Buy).
Todd Bunton is the Growth & Income Stock Strategist for
and Editor of the
Income Plus Investor service
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