On Dec 5, we reiterated our Neutral recommendation on steel pipe and tube company Valmont Industries, Inc.
(VMI - Analyst Report
). While the company should gain from strong demand environment across utility and irrigation markets, we take a cautious stance factoring in weakness across lighting and traffic markets in North America and a still challenging operating backdrop in Europe.
Valmont posted lower-than-expected third-quarter 2013 results on Oct 17 with both revenues and adjusted earnings missing Zacks Consensus Estimates. Profit was essentially flat year over year as higher sales were offset by an increase in tax expenses. The company envisions sustained improvement in utility support and engineered infrastructure support businesses.
Valmont, a Zacks Rank #3 (Hold) stock, is witnessing significant strength across the utility and irrigation markets. In the Irrigation segment, improving North American equipment demand and higher farm income is boosting sales and profitability. Moreover, the global transmission and distribution markets are seen as major long-term growth opportunities in the utility market.
In addition, Valmont is actively pursuing capacity expansion through new constructions and extension of existing facilities to meet the increasing demand from utility customers in North America.
However, Valmont remains affected by a challenging operating backdrop in Europe. In its Engineered Infrastructure Products division, weak government infrastructural funding is hurting lighting and traffic product markets across North America and Europe.
Valmont is also exposed to volatility in raw material costs. Higher prices for key raw materials such as steel, aluminum and zinc, along with their reduced availability, may raise the company’s operating costs and reduce its profitability.
Other Stocks to Consider
Other companies in the steel and related industries with favorable Zacks Rank are Companhia Siderurgica Nacional
(SID - Analyst Report
), United States Steel Corp.
(X - Analyst Report
) and Worthington Industries, Inc.
(WOR - Snapshot Report
). While Companhia Siderurgica maintains a Zacks Rank #1 (Strong Buy), both United States Steel and Worthington Industries hold a Zacks Rank #2 (Buy).