Raven (RAVN) Poised to Grow on Investments Amid Cost Woes

Raven Industries, Inc. 's RAVN updated research report was issued on Aug 27.

This Zacks Rank #3 (Hold) stock is poised to grow on the back of higher oil prices , strategic investment projects and greater operational efficacy. However, lower prices for agricultural products and escalating cost remain two key causes of concerns for the company.

Inside Story

Raven's year-over-year revenue growth was 35.8% and 8.9% in fiscal 2018 (ending January 2018) and first-half fiscal 2019 (ended July 2018), respectively. The company believes stronger demand from existing business platforms, and new research & development investments will drive its top-line performances in the quarters ahead.

Stronger demand for the recently-launched products, as well as the company's efforts to strengthen autonomous solutions, new auto-steering capabilities and boom-leveling technology capabilities will likely bolster the Raven's Applied Technology segment's top line.

Stronger revenues from Colorado Lining International (September 2017) buyout, as well as investments made to develop value-added products, like new blown film, will likely boost the company's Engineered Films segment's revenues in the quarters ahead.

On the other hand, investments made in stratospheric balloon and radar business platforms, as well as favorable contract deliveries, will likely improve aggregate sales of Raven's Aerostar segment, moving ahead.

Additionally, from an external market perspective, favorable energy market conditions have been strengthening Raven's top-line performance. The company anticipates that higher oil prices (estimated to lie between $65 and $75 per barrel) will continue to spur demand for its geomembrane films, moving ahead. The Geomembrane market is currently the largest subject of Raven's Engineered Films segment.

Over the past three months, Raven's shares have rallied 26.2%, as against the 0.5% loss recorded by the industry it belongs to.

Raven pulled off an average positive earnings surprise of 13.05% over the preceding four quarters. The company believes elevated sales volumes, favorable product mix, lower engineering product costs, ongoing pricing actions and reduces taxes will drive its bottom-line performances in the near term. Additionally, investment made in Project Atlas is expected to improve the company's overall operational efficacy, going forward. Under this, Raven is adopting a new Oracle-based enterprise resource-planning platform.

Over the long run, the company intends to deliver annual earnings growth of more than 10%, on a consolidated basis. Also, per our estimates, Raven's earnings per share are predicted to be up 10%, over the next three to five years.

However, Raven's shares look overvalued compared with the industry, on a Price/Earnings (TTM) basis. For the past three-month period, the company is trading at 33.1x, higher than the industry ratio of 18.7x.

We notice that Raven's cost of sales flared up 28.4% and 6.9% year over year in fiscal 2018 and first-half fiscal 2019, respectively. The company stated that material cost inflation (on account of tariffs imposed over certain products like aluminum, steel, electrical components and fiber) is primarily responsible for this upsurge. Rising cost, if unchecked, might hurt Raven's bottom-line performances in the near future.

Also, from an external market view, weak agricultural product prices are currently straining Raven's Applied Technology segment's top line. The company noted that the global agricultural market is at its fifth year of low profitability. Inadequate income of farmers is currently hurting demand for agricultural products, thereby depressing its prices in the market. The downside in input costs has yet not created a notable impact over farmers' earnings. Raven believes low commodity prices in the agricultural market will continue to impact its revenues unfavorably in the upcoming quarters.

Stocks to Consider

Some better-ranked stocks in the same space are listed below:

Federal Signal Corporation FSS sports a Zacks Rank of 1 (Strong Buy). The company pulled off an average positive earnings surprise of 22.48% over the past four quarters. You can see the complete list of today's Zacks #1 Rank stocks here .

Carlisle Companies Incorporated CSL holds a Zacks Rank #2 (Buy). The company delivered an average positive earnings surprise of 12.85% over the trailing four quarters.

Crane Company CR also carries a Zacks Rank of 2. The company recorded an average positive earnings surprise of 3.03% during the same time frame.

Wall Street's Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It's a once-in-a-generation opportunity to invest in pure genius.

Click for details >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Raven Industries, Inc. (RAVN): Free Stock Analysis Report

Federal Signal Corporation (FSS): Free Stock Analysis Report

Carlisle Companies Incorporated (CSL): Free Stock Analysis Report

Crane Company (CR): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.