We recently maintained our Neutral recommendation on
Universal Forest Products, Inc.
), a large player in the lumber supply chain, anticipating its
performance to be in line with the broader market.
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Universal Forest Products has compelling long-term growth
prospects. The company looks forward to improving its top-line
growth through additions of new customers and products to its
portfolio. Revenue generation is targeted to reach $3 billion
with operating margins at normal historical levels by 2017.
We believe Universal Forest is progressing well towards achieving
its set targets. The stock has grown over 24% year-to-date and is
expected to continue with the momentum in the quarters ahead.
Universal Forest reported impressive financial results for the
second quarter 2013 on Jul 17. Earnings per share in the quarter
grew 18% year over year and revenues too soared 24% on the back
of double-digit growth in the five market segments served by the
company. Lumber prices increased 15% year over year.
Despite all these positives, near-term concerns surrounding the
stock have forced us to remain on the sidelines for Universal
Forest. The company's precarious dependence on general market
conditions exposes it to top-line risks in the event of any
adverse condition. Moreover, significant volatility in the cost
of commodity lumber products from primary producers is one of the
prime causes of concern for the company.
Other Stocks to Consider
Universal Forest currently has a market capitalization of $811
million. Other stocks to watch out for in the industry are
Builders FirstSource, Inc.
), each with a Zacks Rank #2 (Buy).
The company's nearest competitor
) is slated to release its second quarter 2013 results on Aug 6,