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LB Foster Faces Headwind Perils, Retains Few Scopes

On Nov 13, 2014, we issued an updated research report on premium railroads manufacturing firm LB Foster Co.FSTR . The company offers a variety of non-imitable products and services to rail, construction, energy and utility markets through its Rail, Products, Construction and Tubular Product segments. However, with a wide global network, the company remains vulnerable to stiff competition within the industry.

Persistent Issues

Poor sales in Union Pacific Railroad, lower steel prices and feeble performance of rail division continue to hamper LB Foster's business. Moreover, the company has revised its full-year 2015 earnings guidance to a range of $2.15-$2.50 per share and revenues within $685-$725 million, down from the prior projections of $3.20-$3.30 and $770-$780 million. The slash in guidance was attributable to declining demand in rail as well as piling products division, litigation costs associated with handling and defense of the Union Pacific lawsuit, and anticipation of lower returns from new acquisitions in energy market.

Further, the company encounters severe business rivalry. Hence, in order to lower risks of market share loss and increase its competency in the market, LB Foster invests heavily toward technological innovations. However, in case the newly invented technology becomes obsolete in a short span of time, such expenses prove to be futile.

Moreover, steel is used as the key raw material for most of LB Foster's operations, and due to cyclicality in the steel industry, its price and availability remain uncertain. At the same time, the company depends on a handful of suppliers for its operations. In case there is a disruption in adequate or timely supply of raw materials, heavy loss may be incurred.

Scopes for Growth

We anticipate the above-mentioned negatives to continue weighing on this Zacks Rank #5 (Strong Sell) stock's top- and bottom-line results, going ahead. However, certain tactical initiatives undertaken by the company might partially offset the impact of such adversities. For instance, improved sales of pre-cast building division and the newly acquired energy businesses will likely drive LB Foster's revenue growth in the upcoming quarters.

The company is also making consistent efforts to improve margins through greater operational efficiency and cost-saving programs. The firm recently introduced an Enterprise Resource Planning system and added certain innovative software for its proper implementation. Going forward, the new tool is expected to help improve the company's profitability by deploying its resources in the most optimal manner.

Stocks to Consider

LB Foster presently carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the industry include On Assignment Inc. ASGN , Broadridge Financial Solutions, Inc. BR and CBIZ, Inc. CBZ . All three stocks hold a Zacks Rank #2 (Buy).

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BROADRIDGE FINL (BR): Free Stock Analysis Report

FOSTER LB CO (FSTR): Free Stock Analysis Report

ON ASSIGNMENT (ASGN): Free Stock Analysis Report

CBIZ INC (CBZ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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