Kevin Cook

Bull of the Day: Valmont Industries (VMI)

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February 21, 2013 |

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Valmont Industries is primarily engaged in the production of fabricated metal products, metal and concrete pole and tower structures and mechanized irrigation systems in the U.S. and abroad.

Customers and end-users of Valmont's products include state and federal governments, contractors, utility and telecommunication companies, manufacturers of commercial lighting fixtures, large farms as well as the general manufacturing sector.

Roughly 45% of total sales last year were either achieved in markets or produced by manufacturing plants outside of North America. The company has diversified geographically to over 100 countries.

Valmont Tops Estimates

In Valmont's fourth-quarter 2012 earnings report last week, the company posted EPS of $2.43 per share, outstripping the Zacks Consensus Estimate of $2.24 while declining from the prior-year quarter's earnings of $4.33 per share.

While profit slid roughly 43% year over year to $65 million in the reported quarter, the year-ago quarter's profit was boosted by one-time benefits associated with the reorganization of the company's legal structure. Barring that benefit, earnings were $1.83 per share a year ago.

For full-year 2012, earnings came in at $8.75 per share, also topping the Zacks Consensus Estimate of $8.56. Valmont posted revenues of $815 million in the fourth quarter, up 8% year over year. It exceeded the Zacks Consensus Estimate of $792 million.

Sales were driven by double-digit gains across the company s Utility Support Structures and Irrigation segments.

Momentum Across Businesses

Valmont's Irrigation and Coatings segments are witnessing strong momentum recently. In the Irrigation segment, improving North American equipment demand amid the ongoing drought conditions and higher farm income is boosting sales and profitability. The Coatings segment is benefiting from moderating zinc prices and declining energy costs.

The company is also poised to see incremental opportunity in the utility market. The global transmission and distribution markets are seen as major long-term growth opportunities. The company is actively pursuing capacity expansion through new constructions and extension of existing facilities to meet the increasing demand from utility customers in North America.

The Engineered Infrastructure Products Segment, while remaining challenged by the soft market conditions in Europe and weak government spending, is expected to post sales gains in 2013. The passage of a two year highway bill and improvement across the wireless communications and commercial lighting markets represents positives for the infrastructure business.

Moreover, infrastructure build-outs by wireless carriers to support the roll out of 4G network is supporting the results of the company s wireless communication structures business.

Acquisitions for Global Growth

Valmont has a long history of acquisitions. In 2008, Valmont acquired Penn Summit LLC, a manufacturer of steel utility and wireless communication poles in Pennsylvania. It also acquired 70% of Canada s West Coast Engineering Group, a manufacturer of steel and aluminum structures.

In the same year, Valmont acquired Site Pro 1 Inc., a distributor of wireless communication components in the U.S. market. In November 2008, Valmont fully acquired Stainton Metal Co., a manufacturer of steel structures for the lighting, transportation and wireless communication industries in the U.K.

Well-Run, But Not Cheap

Moving ahead, Valmont expects continued strength in its utility business in 2013, manifested by healthy order backlogs. It also expects a strong first half in the Irrigation division.

Valmont expects healthy demand for the Coatings segment. Moreover, it envisions modest sales gains in the Engineered Infrastructure Products unit despite the government spending constraint. The company foresees low-teens revenue increase and high-teens earnings gain in 2013.

Valmont's valuation is not cheap at 15.5X, while peers in steel pipe and tubing like MRC Global (MRC - Analyst Report) and Tenaris SA (TS) trade at 13X and Synalloy (SYNL) trades under 10X. But Valmont's trailing EPS is 18X while the industry average is 35X.

If the global economy expands at a 3% pace this year, Valmont could support a high teens multiple. After its post-earnings pop above $150 up to new life-time highs at $159.61, pullbacks toward $150 should be considered for entry opportunities and potential 10-20% gains in 2013.

Kevin Cook is a Senior Stock Strategist with Zacks.com

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