We reiterate our Neutral recommendation on
Raven Industries Inc.
). We expect the company's revenues to benefit from the
soaring demand for its geo membrane films. But its margins
would remain constrained due to increased capital spending and the
prevailing drought conditions in the U.S.
Raven, in second-quarter fiscal 2013, reported earnings of 32
cents per share, missing the Zacks Consensus Estimate of 38 cents.
Revenues improved 13% year over year to $101.7 million, marginally
missing the Zacks Consensus Estimate of $102 million.
Sales and operating income in the Engineered Films segment were
at record levels during the quarter, due to the soaring demand for
the geo membrane films. The geo membrane films, meant for
environmental protection, are experiencing higher demand as
customers are keen on protecting water and other environmental
resources for a sustainable future. Rising demand for the geo
membrane films is expected to boost revenues further moving
Vista Research, which Raven acquired in January 2012, has
a high growth potential. Vista Research has recently signed a new
$6 million contract with the U.S. government to support and further
explore the applications of its radar technology. Moreover, the
company is also focusing on increasing the customer base of Vista
both in the domestic and international markets.
In addition, Raven aims at enhancing its product portfolio to
increase its market share in the industry. The company introduced
many new products in the applied technologies segment and has
decided to further invest in product development in this segment in
fiscal 2013 to meet the increasing demand of its customers.
However, increased capital spending will pressure margins moving
forward. During the first half of fiscal 2013, capital spending
increased $6 million. Capital spending is expected to increase to
$35 million this year. Moreover, R&D expenses in the
Applied Technology and Aerostar division are also projected to
Adding to the woe is the severe drought condition in the U.S
which is expected to hinder Raven's results, pressuring its
revenues on the home front.
Our long-term recommendation is in line with the short-term
Zacks #3 Rank (Hold).
RAVEN INDS INC (RAVN): Free Stock Analysis
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