On Sep 17, 2013, we downgraded our recommendation on
Gibraltar Industries Inc.
) to Underperform from Neutral, based on weak industrial market
Why the Downgrade?
Gibraltar Industries has been facing a downturn in its
industrial end market over the past few quarters. In the second
quarter of 2013, the industrial market faced a decline of 10%
year over year (excluding acquisitions). This decline pulled down
the total revenue as well as margins for the quarter. Gibraltar
Industries uses steel as its main raw material. However, as the
prices of steel move down, the company is also expected to reduce
its prices, which makes it challenging to increase margins.
The residential repair and remodeling activities, that
constitute a major portion of the company's revenues, also
performed below expectations in the second quarter of 2013. The
decline was primarily a result of unfavorable weather conditions
and home-owners' reluctance to go for remodeling projects. The
revenue generation from the residential repair and remodeling
activities for 2013 are now expected to be flat year over year,
against an earlier expected hike of 2% to 5%.
Gibraltar Industries derives a major portion of its revenues
from only a handful of customers (36% of total revenue in 2012).
Moreover, the company does not have long-term contracts with its
customers, leading to a possibility of termination of the
purchase. The loss of any of these customers may lead to a severe
decline in the company's revenues.
Due to Gibraltar Industries' worldwide presence, the company
is exposed to various international risks such as foreign
currency risks, various environmental and economical laws as well
as cultural diversity of the countries.
The Zacks Consensus Estimate for 2013 has dropped 27.4% in the
last 60 days to 61 cents per share, reflecting an estimated
year-over-year decline of 5.6%. For 2014, the Zacks Consensus
Estimate declined 14.6% during the same period to $1.05 per
share, reflecting a year-over-year growth of 71.6%.
Other Stocks to Consider
Gibraltar Industries currently carries a Zacks Rank #4 (Sell).
Other stocks worth a watch in the steel sector are
Companhia Siderurgica Nacional
Northwest Pipe Co.
). While Companhia Siderurgica and Northwest Pipe carry a Zacks
Rank #1 (Strong Buy), Gerdau carries a Zacks Rank #2 (Buy).
GERDAU SA ADR (GGB): Free Stock Analysis
NORTHWEST PIPE (NWPX): Free Stock Analysis
GIBRALTAR INDUS (ROCK): Free Stock Analysis
CIA SIDERUR-ADR (SID): Free Stock Analysis
To read this article on Zacks.com click here.