We have maintained our Underperform recommendation on metal
building components maker
NCI Building Systems Inc.
). Our view reflects volatile steel prices, the company's
dependence on a few steel suppliers and the impact of
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Why the Reiteration?
NCI Building, on Jun 4, reported loss per share of 28 cents in
the second quarter of 2013, affected by weather-related plant
closures and shipment delays as well as additional costs related
to marketing and sales. However, revenues rose 17% year over year
to $293.4 million in the reported quarter, mainly contributed by
the Metl-Span acquisition and the success of its cross-selling
The second quarter also saw steeper marketing and sales cost that
impacted margins. Margins were also hurt by poor weather
conditions, which caused project delays.
While the company is poised to gain from the expected recovery in
nonresidential construction, investments in growth initiatives
and ramp-up of new plants, we are concerned about the volatility
of steel prices and dependence on few steel suppliers.
One of the important raw materials for NCI Building is steel and
the company is considerably influenced by the steel prices. The
steel industry is cyclical in nature and steel prices have
remained highly volatile in recent years. The prices may remain
volatile in future causing margin headwinds.
Moreover, the impact of sequestration and a still weak global
economic environment remain concerns. Adverse weather conditions
also remain as headwinds for the upcoming quarters.
Other Stocks to Consider
Other stocks in the same industry with a favorable Zacks rank are
CaesarStone Sdot-Yam Ltd.
) with a Zacks Rank #1 (Strong Buy), and
) with a Zacks Rank #2 (Buy).