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Analyst Blog

On Nov 28, we maintained our Neutral recommendation on leading designer and developer of glass products, services, and systems, Apogee Enterprises Inc. (APOG - Analyst Report). We reiterated our recommendation owing to our concerns related to moderating global economic growth. However, strong backlog, revenue growth opportunities from its focus on operational improvements, expansion and new product launches, and a recovery in U.S. construction are some positives.

Why Reiterated?

Apogee's second-quarter fiscal 2014 earnings of 21 cents per share were up 17% from the year-ago quarter. Total revenue improved 1.3% to $178 million.

For fiscal 2014, Apogee increased its earnings guidance range to 93 cents to $1.00 per share from the prior guidance of 90 cents to $1.00 per share on the back of strong backlog, project pipeline and operating performance. However, the company maintained its revenue growth guidance in the high-single digit.

Gross margin is anticipated to be at least 22% in fiscal 2014. Capital spending for fiscal 2014 is projected in the range of $40 to $45 million as Apogee continues to invest in growth, productivity and product development capabilities.

Consolidated backlog at the end of the second quarter was $304 million, up from $301 million in the prior-year quarter. Apogee’s backlog remains strong, which bodes well for its future performance.

Apogee has faced challenging commercial construction market conditions so far. However, the U.S. construction is finally stabilizing and is on the road to a much-awaited recovery. This bodes well for Apogee going ahead.

So far in fiscal 2014, Apogee closed two acquisitions. In August, Apogee purchased Englewood, CO-based Custom Window Company, Inc., which makes historically accurate aluminum window products and Toronto-based Alumicor Limited, which finishes and fabricates aluminum frames for window, storefront, entrance and curtainwall products for the Canadian commercial construction industry. Both the acquisitions are in sync with Apogee’s strategy to expand its architectural framing systems segment through geographic expansion, new products and domestic acquisition.

However, macroeconomic conditions pose a headwind for Apogee's performance in fiscal 2014. Moderating global economic growth can affect its results.

Other Stocks to Consider

Apogee retains a short-term Zacks Rank #3 (Hold). Other stocks in the same sector with favorable Zacks ranks are CaesarStone Sdot-Yam Ltd. (CSTE - Snapshot Report), Trex Co. Inc. (TREX - Snapshot Report) and Vulcan Materials Co. (VMC - Analyst Report). While CaesarStone carries a Zacks Rank #1 (Strong Buy), Trex and Vulcan holds a Zacks Rank #2 (Buy).

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