We have maintained our Neutral recommendation on industrial
Raven Industries Inc.
). While the company is expected to return to the historic
earnings growth levels in fiscal 2014 on the back of acquisitions
and positive original equipment manufacturer (OEM) demand,
falling commodity prices and lower manufacturing efficiencies
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Why the Retention?
Raven's earnings for second-quarter fiscal 2014 (ended July 31,
2013), reported on Aug 19,, missed the Zacks Consensus Estimate
while sales came in line. Sales fell as declines across Applied
Technology and Aerostar divisions more than offset a slight gain
in Engineered Films.
Raven remains well positioned for long-term growth and
profitability driven by benefits from investments made over the
last few years, new product developments and expansion. The
company stays optimistic on the OEM demand, which appears to have
stabilized or is perhaps recovering.
Raven's Engineered Films segment reported sales of $37.3 million
in the second quarter, up 1% year over year. The segment will
benefit from opportunities with agricultural barrier films and
growing sales for new multi-layer geomembrane products.
In addition, with the global population expanding rapidly,
Raven's Applied Technology Division has embarked on a mission to
help farmers grow more food. Its continuing endeavor in precision
agriculture and situational surveillance applications will
support expansion as these markets have attractive fundamentals
Raven is also working to offset government uncertainty by
expanding proprietary technology revenues including advanced
radar systems, high-altitude research balloons and aerostats to
international markets. It will be benefited from Project Loon, a
new project for balloon-powered Internet access, in which
) will use Raven's Aerostar-designed and developed high-tech
However, the Aerostar segment will continue to face government
uncertainty and sluggish demand. The segment will also be
affected by the planned transition from electronic manufacturing
services to a more technology driven company, which does not fit
the business model. This will bring some volatility in the
results in the upcoming quarters.
For the third quarter of fiscal 2014, the company expects
earnings to be affected by a challenging environment, falling
commodity prices and lower manufacturing efficiencies due to line
start-up costs. Moreover, increased investments in new
initiatives, product development and the resultant increase in
research and development and selling, general and administrative
expenses will hurt margins.
Other Stocks to Consider
Among the other stocks in the same industry,
Hutchison Whampoa Ltd
Federal Signal Corp.
) look favorably placed with a Zacks Rank #1 (Strong Buy) and a
Zacks Rank #2 (Buy), respectively.