We recently downgraded our recommendation on
Universal Forest Products, Inc.
) from Outperform to Neutral, anticipating the company to perform
in line with the broader market.
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UNIVL FST PRODS (UFPI): Free Stock Analysis
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We find Universal Forest well positioned in the lumber supply
chain, having provided a solid 27.6% year-to-date return. The
company's focus on expansion through development of the
industrial business, entry into markets without adding capacities
and accretive acquisitions have reaped benefits in the past and
are also expected to be positives going forward.
In the last quarter of 2013, Universal Forest added SE Panel
assets to its portfolio. The acquired business will enable the
company to gain easy access into concrete forming and
construction industries of the southeastern region of the United
Besides business expansion, Universal Forest believes in
rewarding its shareholders well through dividend payments,
coupled with regular increases. The last quarter of 2013
witnessed a 5% hike in the annual dividend rate. The company also
did well financially in its third-quarter 2013, as is evident
from 71 cents earnings per share, which more than doubled year
over year. Revenue grew 22%.
Going forward, Universal Forest anticipates boosting its top-line
growth by adding new customers and products to its portfolio. By
2017, the company aims to generate roughly $3 billion sales and
operating margins at normal historical levels.
Anticipating that the company's share price already discounts the
impact of the positives discussed above, we have lowered our
recommendation on Universal Forest from Outperform to Neutral.
Also, risks arising from significant volatility in the cost of
commodity lumber products from primary producers, customer
concentration, competition, and general market conditions might
affect the company's growth momentum.
Other Stocks to Consider
Universal Forest currently has a market capitalization of $1.03
billion and carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the industry include
CaesarStone Sdot-Yam Ltd.
). While Caesar Stone carries a Zacks Rank #1 (Strong Buy), both
Potlatch and Masco hold a Zacks Rank #2 (Buy).