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Here's Why NCI Building Systems (NCS) Stock is a Must Buy

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Shares of NCI Building Systems Inc. , manufacturer of metal products for the North American non-residential construction industry, have been performing well of late. The shares have yielded a year-to-date return of around 9.9%, ahead of the subindustry’s gain of 6.6%. If you haven’t taken advantage of the share price appreciation yet, the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead. The stock has an estimated long-term earnings growth rate of 10%.

Favorable Zacks Rank & Score

NCI Building Systems currently sports a Zacks Rank #1 (Strong Buy) and also has a VGM score of “B”. Here ‘V’ stands for Value, ‘G’ for Growth and ‘M’ for Momentum. The score is a weighted combination of these three scores. Such a score allows investors to eliminate the negative aspects of stocks and select winners.

Estimates Moving Up

Estimates for fiscal 2017 and 2018 for NCI Building Systems have moved up in the past 30 days, reflecting the optimistic outlook of analysts.

The estimate for fiscal 2017 has gone up $1.01, reflecting a year-over-year growth of 42.96%. The Zacks Consensus Estimate for earnings for fiscal 2018 has also moved up 5% to $1.32, a year-over-year growth of 30.05%.

Ahead of the Industry



In the last six months, NCI Building outperformed the Zacks classified Building & Construction Products- Miscellaneous subindustry with respect to price performance. The stock advanced 9.5%, while the subindustry recorded growth of 7.2%.

Upbeat Q2 & Guidance

NCI Building Systems posted adjusted earnings of 16 cents per share for second-quarter fiscal 2017, fourfold the earnings of 4 cents in the prior-year quarter. Earnings also beat the Zacks Consensus Estimate of 12 cents, leading to a positive earnings surprise of 33%. The company ended the fiscal second quarter with a consolidated backlog of $552.3 million, which is up 3.2% from the prior year and is consistent with the latest growth expectations for fiscal 2017. The company anticipates the robust backlog growth to drive results.

For fiscal 2017, NCI Building Systems hiked revenue guidance range to $1.80–$1.86 billion from the previous range of $1.75–$1.85 billion. Adjusted EBITDA is now forecasted in the range of $180–$200 million, up from the prior range of $175–$205 million. The company anticipates performance in second-half 2017 to be better than the first-half performance, on the back of its ongoing cost savings initiatives and opportunities to expand IMP product lines.

Growth Path Ahead

The key leading indicators that NCI Building Systems follows and that typically have the most meaningful correlation to non-residential low-rise construction starts are the American Institute of Architects' ("AIA") Architecture Mixed Use Index, Dodge Residential single family starts and the Conference Board Leading Economic Index ("LEI"). Historically, there has been a very high correlation to low-rise non-residential starts when the three leading indicators are combined and then seasonally adjusted. The combined forward projection of these metrics, based on a nine to 14-month historical lag for each metric, indicates an expected positive growth of 3.0–6.0% for low-rise new construction starts in fiscal 2017.

NCI Building Systems’ cost-saving initiatives and opportunities to expand the IMP product lines are likely to drive growth. The company's cost-saving initiatives in manufacturing consolidation and ESG&A are projected to generate $30–$40 million in cost savings by the end of fiscal 2018. During fiscal 2017, these two initiatives are anticipated to generate an incremental $10 million in cost savings. Based on these factors, it will deliver modest growth in underlying volumes with continued year-over-year operating margin expansion in fiscal 2017.

Other Stocks to Consider

Other top-ranked stocks worth considering in the same sector are Armstrong World Industries, Inc. (AWI - Free Report) , Masco Corporation (MAS - Free Report) and Patrick Industries, Inc. (PATK - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Armstrong World has a long term estimated earnings growth rate of 10.06%. Masco has a long-term estimated earnings growth rate of 16.07% while Patrick Industries has a long-term estimated earnings growth rate of 10.05%

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