We have recently upgraded
Universal Forest Products, Inc.
) from Underperform to a Neutral recommendation, anticipating its
performance to be in line with the broader market.
Why the Upgrade?
Universal Forest Products is a large player in the lumber supply
chain consuming approximately 7% of the North American softwood
lumber production annually. The stock has grown roughly 9%
year-to-date and is quite likely to perform well in the quarters
If we steal a look into the company's first quarter 2013 results,
we find that the Universal Forest provided upbeat results for the
quarter. Earnings per share came in at 26 cents, up 24% year over
year and way above the Zacks Consensus Estimate of one cent.
Revenue grew 21% on the back of very fine performance in its five
market segments. Unit sales increased 2% while prices rose by 19%
in the quarter.
Management of Universal Forest looks forward to improving its
top-line growth through additions of new customers and products
to its portfolio. The company aims to be a $3 billion company on
the back of roughly a 15% improvement in productivity and a three
percentage point improvement in profitability by 2014.
We believe Universal Forest is progressing well towards achieving
its set targets. Also, expansion through meaningful acquisitions
has been the company's favoured mode of forging ahead. Of the
many acquisitions it has made, the recently acquired Nepa Pallet
and Custom Caseworks assets have served to strengthen the
company's foothold in Northwest United States and industrial
Universal Forest has also been rewarding its shareholders through
regular dividend payments with increases at regular intervals.
Recently, the company received its Board of Directors' approval
for a semi-annual dividend payment to its shareholders.
All these positives forced us to upgrade our view on Universal
Forest, which was restricted to a Neutral recommendation due to
some near-term concerns surrounding the stock. Rising costs have
been a major hurdle for the company; cost of goods sold increased
23.3% while selling, general and administrative rose by 5.4% year
over year in the first quarter of 2013.
Other Stocks to Consider
Universal Forest currently has a market capitalization of $776
million. Other stocks to watch out for in the industry are
Plum Creek Timber Co. Inc.
), each holding a Zacks Rank #1 (Strong Buy).
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