On Nov 28, we upgraded our recommendation on
NCI Building Systems Inc.
), a metal building components maker, to Neutral. While the
company is likely to face challenges from volatile steel prices
and incremental operating cost, it will benefit from a strong
backlog, cost-cutting initiatives and a positive mix shift.
Why the Upgrade?
On Sep 4, NCI Building reported third-quarter fiscal 2013 (ended
Jul 28, 2013) adjusted earnings of 2 cents per share, a 60% year
over year slump and significantly behind the Zacks Consensus
Estimate of 12 cents. Total revenues increased 6% year over year
to $317 million, but missed the Zacks Consensus Estimate of $348
NCI Building, a Zacks Rank #3 (Hold) stock, remains committed to
improve its manufacturing process and efficiency through
investments. During the third quarter, the company invested
around $2.3 million to focus on augmenting distribution channels,
production capabilities and customer responsiveness.
In Aug 2013, a fire damaged two ovens at the Jackson, Miss.
coatings facility of NCI Building. However, the company resumed
shipping within a few days and quickly shifted production to
other facilities. This will result in incremental operating cost
of $0.5-$1 million in the fourth quarter.
On the other hand, 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 growing customer base as well
as a distribution network in North America.
In early 2013, NCI Building reopened its Metal Coaters Coil
Coating Facility in Middletown, Ohio. With the opening of this
facility, the company will extend its coil coating operations
into the upper Midwest and Northeast. Moreover, the light-gauge
paint line has ramped up production and remains on track to
become profitable in the fourth quarter of 2013.
However, the Dodge Momentum Index dipped 0.9% in October compared
with the previous month, mainly due to the uncertain political
and economic environment stemming from the government shutdown
that month and debt ceiling deliberations. Thus, developers
remain cautious about the economic scenario.
Furthermore, the company noted that low-rise non-residential
construction starts have declined in the first nine months of
fiscal 2013, suggesting that the market is unlikely to recover
sufficiently to deliver annual growth in volumes.
Other Stocks to Consider
Other stocks in the same industry with a favorable Zacks Rank are
CaesarStone Sdot-Yam Ltd.
James Hardie Industries plc
) with a Zacks Rank #1 (Strong Buy), and
Simpson Manufacturing Co., Inc.
) with a Zacks Rank #2 (Buy).
CAESAR STONE SD (CSTE): Free Stock Analysis
JAMES HARDI-ADR (JHX): Free Stock Analysis
NCI BLDG SYSTEM (NCS): Free Stock Analysis
SIMPSON MFG INC (SSD): Free Stock Analysis
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