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On Feb 7, we reiterated our Neutral recommendation on NCI Building Systems Inc. (NCS - Analyst Report). While the company will continue to benefit from improved pricing, manufacturing efficiencies and a growing customer base, volatility in steel prices and rising interest rates may hurt its performance going forward.

Why the Reiteration?

NCI Building, on Dec 10, reported fourth-quarter adjusted earnings per share of 10 cents, which improved 25% year over year and came ahead of the Zacks Consensus Estimate of 7 cents. Sales climbed 11% to $400 million from the prior-year quarter and exceeded the Zacks Consensus Estimate as well.

The company recorded a backlog of $322.2 million, up 6% year over year owing to a number of larger projects and projects with higher margins. This bodes well for the company in the future.

Though management did not provide any specific guidance for fiscal 2014, it anticipates improved margins in fiscal 2014 driven by greater commercial discipline, manufacturing efficiencies and volume-driven operating leverage. The company also believes that the benefit of improved pricing will be reflected in orders shipped in the first half of 2014.

A fire damaged two ovens at the Jackson, MS coatings facility of NCI Building last year. However, the company resumed shipping within a few days and quickly shifted production to other facilities. NCI Building realized a gain of $1 million on the insurance recovery in the fourth quarter. Moreover, the company hopes to receive further reimbursements, which would be recognized as gains in the future.

Additionally, the Metl-Span acquisition will position NCI Building as a leader in the insulated metal panel business by diversifying and expanding its existing product range. NCI Building will also benefit from a widening of its customer base and distribution network in North America.

Despite these positives, rising interest rates remains a concern for both the overall economy as well as the construction industry. Moreover, uncertainty in the global economic scenario and adverse weather conditions are challenges in the coming quarters.

NCI Building currently has Zacks Rank #5 (Sell).

Other Stocks to Consider

Some better-ranked players worth considering in the sector include USG Corp. (USG - Snapshot Report), Orion Marine Group, Inc (ORN - Snapshot Report) and Chicago Bridge & Iron Company N.V. (CBI - Analyst Report). All of these have a Zacks Rank #2 (Buy).

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