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Here's Why You Should Dump Universal Forest (UFPI) Stock Now

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We believe that disappointing second-quarter results, rising costs and expenses as well as exposure to near-term headwinds have weakened Universal Forest Products Inc.’s (UFPI - Free Report) prospects.

It currently carries a Zacks Rank #5 (Strong Sell). Investors are advised to sell off their current holdings or avoid gaining exposure in the stock.

In the last three months, the company’s shares have lost 10.9%, wider than roughly 3.4% decline of the industry it belongs to.

Why the Downgrade?

In the past 60 days, the earnings estimates for the stock have been revised down, clearly reflecting negative sentiments. To be precise, the Zacks Consensus Estimate for third-quarter 2017 declined 18.3% to $1.43. Likewise, estimates for 2017 and 2018 fell 10.7% and 7.5% to $5.24 and $6.01, respectively.

We believe that a number of factors have led to this pessimistic view. The company’s top-line growth in second-quarter 2017 was offset by 24.8% increase in cost of sales and 21.2% jump in operating expenses. We believe that unwarranted rise in these expenditures will dent the company’s profitability going forward.

Also, costs and selling prices of lumber products are dependent on factors like government policies, environmental regulations, weather conditions, economic conditions and natural disasters. Any unusual rise or fall in lumber cost can impact the company’s operations adversely. Notably, volatility in the lumber market was a concern in the second quarter.

International exposure renders it vulnerable to risks arising from adverse foreign currency movements and geopolitical issues. Also, stiff industry competition and customer-concentration risks pose serious threats of the company’s growth. For example, any reduction in orders from The Home Depot, an important customer, may hurt the company’s financial growth.
 
Stocks to Consider

Universal Forest Products has a market capitalization of approximately $1.6 billion. Some stocks worth considering in the industry are Potlatch Corporation (PCH - Free Report) , Trex Company, Inc. (TREX - Free Report) and Rayonier Inc. (RYN - Free Report) . While Potlatch Corporation sports a Zacks Rank #1 (Strong Buy), both Trex Company and Rayonier carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Potlatch Corporation’s earnings estimates for 2017 and 2018 were revised upward in the last 60 days. Also, the company delivered an average positive earnings surprise of 41.16% for the last four quarters.

Trex Company’s earnings estimates for 2017 and 2018 improved in the last 60 days. Also, it pulled off an average positive earnings surprise of 7.58% for the last four quarters.
 
Rayonier’s earnings estimates for 2017 improved in the last 60 days. The company delivered better-than-expected earnings in three of last four quarters, with an average positive surprise of 59.94%.

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