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On Dec 4, 2013, we maintained our recommendation on Gibraltar Industries Inc. (ROCK - Analyst Report) at Neutral. Despite improving global construction activities, deteriorating sales in the company’s Industrial segment raise our concern.

Why the Reiteration?

Gibraltar Industries has a prominent presence in the construction industry due to its diversified product offering through different market players like wholesalers, retail home centers, residential, commercial and transportation contractors. The company has expertise in products ranging from ventilation and expanded metal, to mail storage solutions and rain dispersion products and solutions.

The global construction industry is seeing improvement, with significant developments in the U.S. Gibraltar Industries has been gaining from the construction of multi-family buildings as well as new constructions in the residential new housing markets. Additionally, repair and remodeling activities are on the rise and the company expects this end-market to grow further in the long run.

Parallel with its organic growth, the company is also recording robust contributions from the acquisitions undertaken. With a strong balance sheet and cash in hand, Gibraltar Industries may seek further acquisitions, which will not only increase its product offerings but also expand its geographical presence.

However, the company’s overseas operations expose it to various challenges from environmental and economic laws as well as cultural diversity of the foreign countries. This may cause severe operational disruptions for Gibraltar Industries.

The company’s customer concentration risks are another cause for concern. Moreover, the absence of long-term contracts with its customers, leads to a possibility of termination of purchase. This may result in severe loss to the business.

A glimpse of the third-quarter 2013 financial results clearly depicts favorable company performance in the quarter. Gibraltar Industries’ adjusted earnings per share was 31 cents in the quarter, up from the Zacks Consensus Estimate of 25 cents. Revenues increased by 6% year over year, as acquisitions contributed significantly along with improvement in the residential new construction market. Gross margin expanded 16 basis points to 20%.

The Zacks Consensus Estimate for Gibraltar Industries currently stands at 86 cents per share for 2014, reflecting a year-over-year growth of 36.8%.

Other Stocks to Consider

Gibraltar Industries currently carries a Zacks Rank #3 (Hold). Other better-ranked stocks in the industry include CaesarStone Sdot-Yam Ltd. (CSTE - Snapshot Report), James Hardie Industries plc and Simpson Manufacturing Co., Inc. (SSD - Snapshot Report). While CaesarStone Sdot-Yam and James Hardie Industries hold a Zacks Rank #1 (Strong Buy), Simpson Manufacturing carries a Zacks Rank #2 (Buy).

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