On Mar 8, we downgraded our recommendation on
Raven Industries Inc.
) from Neutral to Underperform. This industrial manufacturer of
products for the agricultural, industrial, construction and
military/aerospace markets witnessed the downgrade on the back of
tepid fourth quarter outlook due to continued macro weakness
related to energy exploration and defense spending and continued
headwinds for Raven's segments.
Why the Downgrade?
Raven's third-quarter 2013 sales increased 4% to $97 million
while earnings declined 3% to 31 cents per share, pulled down by
weak energy and agricultural sales. Both fell short of the
respective Zacks Consensus Estimates.
The Aerostar segment will continue to be impacted by sluggish
aerostat orders in the near term. Aerostar is subject to federal
spending and new opportunities in tethered aerostats to provide
cost-effective persistent surveillance for the military and
border security are critical to Aerostar's success. Even though
Aerostar's protective wear, military parachute and high altitude
research balloon operations have been successful, the segment's
results will continue to be affected in the absence of additional
aerostat or smart sensing radar system orders in Vista.
Revenues at the Engineered Films segment will remain affected
due to continued weakness in energy market, which accounts for
around 40% to 50% of the segment's sales. Margins in the
Applied Technology segment will be under pressure due to the
company's increased investments in new initiatives. Given
the performance so far in the year and mixed fourth-quarter
outlook, the company's long-term earnings growth target of 10-15%
seems a distant possibility in the current year.
Raven is set to report fourth-quarter 2013 results tomorrow,
Mar 12. The Zacks Consensus Estimate for the fourth quarter has
slipped 19% to 25 cents over the last 60 days, reflecting a 16.7%
year-over-year decline. For fiscal 2013, the Zacks Consensus
Estimate has dipped 4% to $1.39 per share, depicting a 0.36%
Other Stocks to Consider
Raven currently hold a short-term Zacks Rank #4 (Sell). Among
the other stocks in the same industry,
Macquarie Infrastructure Company LLC
Tyco International Ltd.
) hold a Zacks Rank#2 (Buy) and are favorable options for
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