On Sep 28, Zacks Investment Research downgraded
NCI Building Systems
) to a Zacks Rank #5 (Strong Sell).
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Why the Downgrade?
Both share prices and earnings estimates have undergone sharp
downward revisions following its disappointing third quarter
fiscal 2013 results, released on Sep 4. NCI Building's third
quarter earnings slumped 60% to 2 cents per share, way behind the
Zacks Consensus Estimate of 12 cents per share. This manufacturer
of metal products for the North American non-residential
construction industry has delivered negative earnings surprises
in 3 out of the past 4 quarters.
Total revenue improved 6% to $317 million in the quarter, but
failed to meet the Zacks Consensus Estimate of $348 million.
Despite a rise in revenues, margins weakened considerably. Gross
margin contracted 90 basis points to 21.1% while operating margin
plunged 200 basis points to 1.3% in the quarter. This was due to
lower-than-anticipated volumes, pricing pressure, and increased
manufacturing costs due to ongoing investments in strategic
initiatives as well as ramp-up costs at its Middletown, Ohio
coating and Mattoon, Ill., insulated metal panel facilities.
The construction market in the third quarter was affected by the
sluggishness in the broader economy. In the quarter, low-rise
nonresidential construction starts (measured in square feet)
dipped 10.7% from the prior-year quarter. Thus, the company
believes that the market is unlikely to recover sufficiently to
deliver annual growth in volumes.
Thus, given the weak results and a tepid outlook, the Zacks
Consensus Estimate for fiscal 2013 has nosedived 322% to a loss
per share of 40 cents a share in the past 30 days, while that for
fiscal 2014 went down 43% over the last 30 days to 33 cents.
Other Stocks to Consider
Not all stocks are performing as poorly as NCI Building Systems.
Building and machinery-construction stocks worth considering
CaesarStone Sdot-Yam Ltd.
), both with a Zacks Rank #1 (Strong Buy), and
), which retains a Zacks Rank #2 (Buy).