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We reaffirmed our long-term Neutral recommendation on L.B. Foster Company (FSTR - Analyst Report) on Jun 10, 2013, as risk reward remains fairly balanced for the stock at this juncture.

Why the reiteration?

Foster reported impressive results for the first quarter of 2013 with earnings per share of 48 cents, increasing 65.5% year over year. Earnings also surpassed the Zacks Consensus Estimate of 40 cents by 20.0%, led by an increase in revenue as well as margins.

Revenue for first quarter 2013 was $129.3 million, up 13.2% year over year, with a steady improvement in the Rail as well as Tubular segments. However, the rise was partially offset by a decline in the Construction segment. Margin management by Foster also played an important role in improving the results.

Rail and Tubular segments of Foster have been performing well over the past few quarters and are expected to contribute further to the company’s growth, moving forward. Its Rail segment registered a year-over-year increase of 22.2% in the first quarter of 2013, followed by the Tubular segment, which experienced an increase of 19.5% year over year. Moreover, management’s expectations for future growth are reinforced by the belief that Foster’s new facility in Magnolia, TX, will contribute significantly to the Tubular segment.

Moreover, Foster has a strong balance sheet with minimal long-term debt. It also expects to turn cash flow from operations to positive by the third quarter of 2013. A strong backlog also plays in favor of the company.

However, the uncertainty revolving around the price and availability of Foster’s primary raw material, steel, cannot be negated. Although Foster lacks direct competitors, it faces stiff competition from various companies for each of its product offerings. Also, being a company with its operations scattered outside the U.S., Foster is prone to foreign currency exchange risks.

Other Stocks to Consider

Foster currently carries a Zacks Rank #2 (Buy). Other steel producing companies worth a look are Kobe Steel Ltd. (KBSTY) and Shiloh Industries Inc. , both carrying a Zacks Rank #1 (Strong Buy); whereas, Angang Steel Company Limited carries a Zacks Rank #2 (Buy).

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