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Analyst Blog

On May 31, Zacks Investment Research downgraded Raven Industries Inc. to Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Raven Industries’ share price and earnings estimates have witnessed a downward trend after reporting disappointing results for first-quarter 2014 on May 20. Earnings estimates of this industrial manufacturer of products have been on the downside on the back of a tepid fiscal 2014 outlook due to sluggish economic conditions and continued headwinds for all of its segments.

Raven’s first-quarter 2014 earnings per share of 38 cents declined 27% year over year and fell 14% short of the Zacks Consensus Estimate of 44 cents. Weakness in the Applied Technology Division, declining demand from U.S. agency customers in Aerostar and a moderated energy market in Engineered Films led to the overall decline.

Raven’s Aerostar segment will continue to face continued government uncertainty and sluggish demand. Continued energy market weakness will impede Engineered Films segment’s performance while the Applied Technology segment will continue to face weather related weakness. Overall, margins will be under pressure due to the company’s heightened investments in new initiatives and the resultant increase in research and development and selling, general and administrative expenses.

Over the last 7 days, the Zacks Consensus Estimate for Raven’s fiscal 2014 earnings decreased 16% to $1.23 per share, while for fiscal 2015 it went down 14% to $1.41 per share.

Other Stocks to Consider

Not all stocks in the same industry are performing as poorly as Raven. We recommend Compass Diversified Holdings (CODI - Snapshot Report) and Honeywell International Inc. (HON - Analyst Report) and ITT Corporation (ITT - Analyst Report) holding a Zacks Rank #2 (Buy).

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