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Michigan-based, Universal Forest Products Inc.(UFPI - Analyst Report) was recently downgraded by us from Neutral to an Underperform recommendation.

The company, of late, reported its fourth quarter 2011 results with break-even adjusted earnings per share, faring well against the year-ago reported loss of 9 cents and the Zacks Consensus Estimate of a 4 cent loss per share. Revenue also surged 11% in all segments, except the Residential Construction segment, which posted good results.

The 2008 global economic meltdown had far reaching effects on businesses worldwide with companies relying essentially on the US housing market and feeling the pinch rather acutely. As time flew by, things started taking a turn for the better, but the weakness in the US housing markets still persists and becomes a constant source of worry for companies like Universal Forest.

Moreover, falling gross margin along with significant volatility in the cost of commodity lumber products from primary producers remains a prime cause of concern for Universal Forest. Management also fears that customer demand would remain soft throughout the fiscal year 2012. In addition, Universal’s precarious dependence on general market conditions heightens top-line risks in the event of any adverse condition.

The Michigan-based company primarily engineers, manufacturers, treats, distributes, and installs lumber, composite wood, plastic and other building products for its do-it-yourself (DIY), site-built construction (homebuilders), manufactured housing, and industrial markets. The company faces stiff competition from industry players like Bluelinx Holdings Inc. , Builders FirstSource Inc. (BLDR - Snapshot Report) and Louisiana-Pacific Corp. (LPX - Snapshot Report).

The Zacks Consensus Estimates for the fiscal years 2012 and 2013 stand at $1.06 and $1.75 per share, representing a year-over-year growth of 232.03% and 64.94%, respectively. Estimate for the first quarter 2012 is one cent.

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