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NCI Building (NCS): Cost Savings & Backlog Growth Bode Well

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On Mar 21, we issued an updated research report on NCI Building Systems, Inc. . The company is poised to benefit from its diligent cost-saving initiatives and robust backlog growth. Focus on debt-reduction plan and share repurchases also remain tailwinds.

During the first-quarter fiscal 2017 conference call, NCI Building reaffirmed its revenue guidance range of $1.75–$1.85 billion and adjusted EBITDA range of $175–$205 million for fiscal 2017. The company anticipates year-over-year improvement in revenues and adjusted EBITDA for fiscal 2017.

NCI Building’s cost-saving initiatives and opportunities to expand the IMP product lines are likely to drive growth. The company's cost-saving efforts in manufacturing consolidation and ESG&A are projected to generate $30–$40 million by the end of fiscal 2018. During fiscal 2017, these initiatives are anticipated to generate an incremental $10 million in cost savings.

Notably, NCI Building ended the fiscal first quarter with a consolidated backlog of $527.1 million, up 10.3% year over year. The figure is also in line with the current growth projections for fiscal 2017. The company anticipates the robust backlog growth to be conducive to fiscal 2017 results.

Further, NCI Building used cash to sustain its debt-reduction plan during the fiscal first quarter and paid $10 million to date in fiscal 2017. Net debt leverage ratio at the end of the fiscal first quarter was 2.3 times, as compared to 2.6 times in the year-ago quarter.

The company also purchased approximately 3.5 million shares at an average price of $14.18 in the quarter and has approximately $40 million remaining under the current repurchase plan. NCI Building’s capital structure and cash flow position remain very strong, and it also continues to invest in businesses.

However, NCI Building has underperformed the Zacks classified Building & Construction Production-Miscellaneous sub-industry with respect to price performance in the last one year, mainly due to escalating raw material cost and weak oil prices. The stock gained around 22%, while the industry recorded 31.2% growth over the same time frame.

NCI Building currently carries a Zacks Rank #2 (Buy).

Key Picks

Other favorably placed stocks in the sector include TopBuild Corp. (BLD - Free Report) , Louisiana-Pacific Corporation (LPX - Free Report) and Owens Corning (OC - Free Report) . All three stocks boast a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

TopBuild has an average earnings surprise of 27.38% for the trailing four quarters. Louisiana-Pacific has an average earnings surprise of 66.28% for the last four quarters, while Owens Corning has an average earnings surprise of 35.13% for the past four quarters.

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