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On Oct 17, 2013, we raised our recommendation on Gibraltar Industries Inc. (ROCK - Analyst Report) to Neutral from Underperform, based on the improving global construction activities.

Why the Upgrade?

Gibraltar Industries manufactures products that range from ventilation and expanded metal to mail storage solutions and rain dispersion products and solutions. The products are supplied to the industrial and buildings market. Gibraltar Industries has a leading presence in the industry due to its diversified product offering, through different market players like wholesalers, retail home centers, residential, commercial and transportation contractors, among others.

With the latest development of the construction industry, mainly in the U.S., we expect the company to generate significant revenues in the coming quarters. Gibraltar Industries has been gaining from the construction of multi-family buildings as well as new constructions in the residential sector. The company expects its repair and remodeling activities to grow in the quarters ahead and boost the total revenue.

Gibraltar Industries’ inorganic growth has been splendid over the past quarters. The three acquisitions completed in the fourth quarter of 2012 contributed roughly 7.3% to revenue growth in the second quarter of 2013. The company expects these acquisitions to boost revenues in the second half of 2013 as well.

However, the company’s overseas operations expose it to various environmental and economical laws as well as cultural diversity. This may lead to severe operational disruptions for the company.

The company’s customer concentration risks also raise our concern. Moreover, the company does not have long-term contracts with its customers, leading to a possibility of termination of the purchase. This may lead to a severe loss to the business.

Other Stocks to Consider

Gibraltar Industries currently carries a Zacks Rank #3 (Hold). Other stocks worth a watch in the industry include Shiloh Industries Inc. (SHLO), Armstrong World Industries, Inc. (AWI - Analyst Report) and Masco Corporation (MAS - Analyst Report). While Shiloh Industries carries a Zacks Rank #1 (Strong Buy), Armstrong World Industries and Masco Corp. carry a Zacks Rank #2 (Buy).

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