On Feb 7, we reiterated our Neutral recommendation on
NCI Building Systems Inc.
). While the company will continue to benefit from improved
pricing, manufacturing efficiencies and a growing customer base,
volatility in steel prices and rising interest rates may hurt its
performance going forward.
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Why the Reiteration?
NCI Building, on Dec 10, reported fourth-quarter adjusted
earnings per share of 10 cents, which improved 25% year over year
and came ahead of the Zacks Consensus Estimate of 7 cents. Sales
climbed 11% to $400 million from the prior-year quarter and
exceeded the Zacks Consensus Estimate as well.
The company recorded a backlog of $322.2 million, up 6% year over
year owing to a number of larger projects and projects with
higher margins. This bodes well for the company in the future.
Though management did not provide any specific guidance for
fiscal 2014, it anticipates improved margins in fiscal 2014
driven by greater commercial discipline, manufacturing
efficiencies and volume-driven operating leverage. The company
also believes that the benefit of improved pricing will be
reflected in orders shipped in the first half of 2014.
A fire damaged two ovens at the Jackson, MS coatings facility of
NCI Building last year. However, the company resumed shipping
within a few days and quickly shifted production to other
facilities. NCI Building realized a gain of $1 million on the
insurance recovery in the fourth quarter. Moreover, the company
hopes to receive further reimbursements, which would be
recognized as gains in the future.
Additionally, the Metl-Span acquisition will position NCI
Building as a leader in the insulated metal panel business by
diversifying and expanding its existing product range. NCI
Building will also benefit from a widening of its customer base
and distribution network in North America.
Despite these positives, rising interest rates remains a concern
for both the overall economy as well as the construction
industry. Moreover, uncertainty in the global economic scenario
and adverse weather conditions are challenges in the coming
NCI Building currently has Zacks Rank #5 (Sell).
Other Stocks to Consider
Some better-ranked players worth considering in the sector
Orion Marine Group, Inc
Chicago Bridge & Iron Company N.V.
). All of these have a Zacks Rank #2 (Buy).