Zacks Investment Research upgraded Universal Forest Products Inc. (UFPI) to a Zacks Rank #1 (Strong Buy) on My 11, 2013.

Why the Upgrade?

Universal Forest impressed all with its financial results for the first quarter 2013 reported on Apr 17, 2013. The company rode on the back of its strong sales performance in its five market segments. The share price since then has increased roughly by 11.4%.

Net income of Universal Forest in the quarter grew 25.7% year over year while earnings per share came in at 26 cents, up 24% over 21 cents reported in the year-ago quarter and way above the Zacks Consensus Estimate of one cent.

Net sales grew 21.3% year over year to $554.5 million benefiting from healthy growth in the lumber market. Talking of costs and margins, cost of goods sold, as a percentage of revenue, increased 140 basis points year over year while gross margin decreased by the same magnitude and settled at 10.3%.

Management of Universal Forest looks forward to improving its top-line growth through additions of new customers and products to its portfolio, going forward. Also, operating margin enhancement remains a prime area of focus for the company.

The solid financial performance induced an upward revision in the earnings estimate for Universal Forest. The Zacks Consensus Estimate in the last 30 days has gone up by 21.0% to $1.73 for 2013 and increased by 3.0% to $2.40 for 2014.

Also, a whopping 2,500% positive earnings surprise in the first quarter 2013 has negated negative surprises in the last three quarters, resulting in a positive average of 467.0%. All these positives have raised optimism for better results ahead for Universal Forest.

Other Stocks to Consider    

Universal Forest Products Inc. manufactures, treats, distributes and installs lumber, composite wood, plastic and other building products. The stock currently has a market capitalization of $754.8 million.

Other stocks to watch out for in the industry are Potlatch Corp. (PCH), holding a Zacks Rank #1 (Strong Buy) while Louisiana-Pacific Corp. (LPX) and Weyerhaeuser Co. (WY), each with a Zacks Rank #2 (Buy).

We have reiterated our Neutral recommendation on AK Steel Holding Corporation (AKS). While the company is poised to gain from healthy automotive demand and lower raw material costs, we remain cautious factoring in its high cost structure, weak steel pricing environment and a challenging operating backdrop in overseas markets.

Why Retained?

The steel maker recorded narrower loss in first-quarter 2013, reported on Apr 23, helped by lower raw material costs. Loss per share was lower than the Zacks Consensus Estimate. However, sales fell due to lower shipments to carbon spot market and missed the Zacks Consensus Estimate.

AK Steel, a Zacks Rank #3 (Hold) stock, is expected to benefit from strength in the automotive market and higher shipment of steel products to automakers. It expects to continue to gain automotive market share in 2013, driven by continued healthy demand for its carbon and specialty steel products.

AK Steel is also investing to procure about half of its iron ore and coal requirements internally. It is making good progress with its coal mine plan and expects to begin mining activities in the near future. It is also making significant progress with its iron ore pellet project at Magnetation. Both these strategic investments are expected to improve the company’s cost structure and strengthen its position in the years ahead.

Moreover, AK Steel should benefit from the favorable pricing trend for key raw materials such as iron ore, coke and coal. Declining prices for these inputs should acts in its favor.

However, AK Steel is exposed to macroeconomic uncertainties, stemming from the sovereign debt crisis in Europe. It is contending with oversupply in the industry and pricing pressure. Lower spot market prices for carbon steel products are hurting selling prices.

In addition, a weak European economy and slowing growth in Asia are impacting AK Steel’s electrical steel business. We are also concerned about its high cost structure. Hefty maintenance outage costs associated with the Middletown Works blast furnace may weigh on the company’s bottom line in the second quarter.

Other Stocks to Consider

Other companies in the steel industry having favorable Zacks Rank are Angang Steel Company Ltd (ANGGY), LB Foster Co. (FSTR) and Ternium S.A. (TX). All of them hold a Zacks Rank #2 (Buy).

On May 13, we maintained a Neutral rating on the U.S. homebuilder, KB Home (KBH) on the back of solid first-quarter 2013 results and the improving housing fundamentals. However, the overall weak economy and the tight mortgage lending standards keep us on the sidelines.

Why the Neutral Rating?

KB Home’s first-quarter 2013 loss of 16 cents per share was narrower than the Zacks Consensus Estimate of 23 cents as well as the year-ago loss of 51 cents riding on higher homebuilding revenues, improved housing gross margins and reduced SG&A ratio. Revenues increased 59% and operating margins grew 12.5% year over year.

In addition to the strengthening housing market, KB Home’s strategic growth initiatives helped drive revenues and profitability higher in the quarter. The company gained from repositioning of land investments toward highly sought-after land constrained, high-end housing markets where the demand for larger homes is increasing which in turn significantly pushed up the average selling prices (ASP).

The company is also improving and refining its products to meet consumer preferences. KB Home expects further profitability in 2013 on the back of its strong land position, significant financial flexibility, increased community count, rising ASPs and improving housing momentum.

Following the solid first-quarter results, the estimate revisions were mostly biased upwards. The Zacks Consensus Estimate for 2013 rose a sharp 210% to 31 cents per share while that for 2014 increased by 11.4% to $1.17 over the last 60 days.

Notwithstanding the improving trend, new home demand in the U.S. remains at historically low levels due to the currently weak economic conditions and tight mortgage lending standards. Consumers will remain cautious until the employment scenario improves, home prices appreciate further and access to the credit markets eases. Sustainable increases in housing and housing demand for the long term will require the overall economy to strengthen, including further job growth, which we believe will take time.

Rising input costs is also a concern due to increasing costs of raw material and labor.  As housing starts accelerate, both labor and construction material costs continue to experience an upward pricing pressure, which could prove to be a major deterrent for margins in the future quarters.

Other Stocks to Consider

KB Home carries a Zacks Rank #2 (Buy). Other stocks in the homebuilding sector that are performing well and deserve a mention include D. R. Horton Inc. (DHI), Ryland Group Inc. (RYL) and Meritage Homes Corp (MTH), all carrying a Zacks Rank #1 (Strong Buy).

Shares of Johnson Controls Inc. (JCI) hit a new 52-week high of $36.93 on May 13, which is above its previous level of $36.55, and closed at $36.82 on the same date. The closing price represented a solid one-year return of 19.3% and year-to-date return of 18.0%.

Johnson Controls is a diversified industrial company that caters to automotive, building and power solutions market at the same time. It has a market cap of $25.2 billion. Average volume of shares traded over the last three months stood at approximately 4,830.31K.

Shares of the company started escalating, following its impressive guidance despite disappointing fiscal 2013-second quarter results released on Apr 23.

Johnson Controls posted a 23.6% decline in adjusted earnings to 42 cents per share in the second quarter of fiscal 2013 ended Mar 31, 2013 from 55 cents in the same quarter of prior fiscal year, but earnings were in line with the Zacks Consensus Estimate. Net income declined 24.1% to $287.0 million from $378.0 million in the second quarter of fiscal 2012.

Revenues in the quarter declined 1.3% $10.43 billion but marginally exceeded the Zacks Consensus Estimate of $10.39 billion. The decline was attributable to lower revenues in the company’s Automotive Experience and Building Efficiency segments.

Johnson Controls reiterated its guidance to generate earnings between $2.60 and $2.70 per share in fiscal 2013, which is higher than $2.56 in fiscal 2012. For the third quarter of fiscal 2013, the company expects earnings per share of 75 cents.

The company also expects that it will record better performance in the second half of 2013 due to benefits from restructuring initiatives, higher profitability from the Building Efficiency segment and improvements in European and South American Automotive Experience businesses. It also expects Power Solutions business to record higher profitability in the second half of fiscal 2013.

Currently, shares of Johnson Controls retain a Zacks Rank #3, which translates into a short-term rating (1–3 months) of Hold. Some other stocks that are performing well in the broader industry where Johnson Controls operates include STRATTEC Security Corporation (STRT), Tower International, Inc. (TOWR) and Visteon Corp. (VC). All these companies carry a Zacks Rank #1 (Strong Buy).

On May 5, 2013 we upgraded specialty contracting services and infrastructure solution provider, Quanta Services Inc. (PWR) to Outperform based on its improved prospects. Quanta Services, which focuses on specialty contracting services, and is one of the largest contractors serving the transmission and distribution sector of the North American electric utility industry, became a Zacks Rank #2 (Buy) stock shortly after reporting impressive first quarter 2013 results.

Why the Upgrade?

First quarter 2013 non-GAAP earnings came in at 38 cents a share, up 31.0% from the Zacks Consensus Estimate of 29 cents a share. The reported figure was also 46.2% higher than the prior-year quarter. Over the past four quarters, Quanta Services has delivered an average surprise of 26.32%.

Following the release of first quarter results, the Zacks Consensus Estimate for 2013 earnings has gone up 1.4% to $1.46 per share.

What drives this strong positive bias on the company? Apart from impressive first quarter results, Quanta Services’ growth story looks compelling. Quanta Services is benefiting from strong demand for its services and continued solid project execution.

Quanta Services stands to gain from increased spending in the Electric Power segment. Projects necessitating the upgrade and deployment of electric power transmission infrastructure to improve system reliability and to deliver renewable electricity from new generation sources to demand centers are on the rise.

Favorable industry legislation is also generating incentives and a positive environment for utilities to invest in their electrical infrastructure, particularly transmission infrastructure. The company’s Electric Power segment continues to win large electric transmission projects and is expected to derive significant benefit from transmission build-out in the US and Canada, leading to strong backlog in 2012 and beyond. Total backlog at the end of 2012 stood at $7.2 billion.

In addition, Quanta’s Natural Gas and Pipeline Infrastructure Services segment and the Fiber Optic segments are also performing well.

Other Stocks to Consider

Besides Quanta Services, other stocks in the utilities and natural gas and pipeline sector that are currently performing well include Chicago Bridge & Iron (CBI), Honeywell International Inc. (HON) and ITT Corporation (ITT), all having Zacks Rank #2 (Buy). 

We reiterate our long-term Neutral recommendation on Amdocs Ltd. (DOX). The company reported mixed financial results for the second quarter of fiscal 2013.

Why Keeping at Neutral?

Amdocs is performing well in the emerging markets of Asia and Latin America while facing a tough environment in Europe due to macroeconomic headwind. Amdocs’ sales opportunity in North America is more visible after the business with AT&T Inc. (T) gained stabilization.

In the reported quarter, the company achieved key production milestones in the modernization of United States Cellular Corp. (USM) and the Netherlands division of Vodafone Group plc. (VOD).

Amdocs offers a portfolio of industry-leading technology integration products of managed services for large transformational projects. We believe that the long-term fundamentals of the company remain intriguing due to the transition of the telecom industry to converged IP solutions. Further, the company has a healthy balance sheet.

Amdocs recently launched its state-of-the-art CES 9 product suite. CES 9 is the industry leading fully-integrated platform of BSS, OSS and Network control. This platform will enable multi-channel customer care and real time full integration of devices and network across video, wireless, fixed-mobile converged and high-speed broadband Internet services.

Nevertheless, Amdocs is exposed to the global economic downturn, particularly those events that affect the telecommunications industry. The macroeconomic scenario is yet to recover completely. In addition, delay in business transformation on the part of the carriers may reduce capital spending.

Economic and political uncertainty in Europe may jeopardize the company’s financials, going forward. Furthermore, as the company is operating globally, it is also exposed to foreign currency exchange rate risk. In the last quarter, the company was negatively affected by $2 million of foreign exchange fluctuations. Furthermore,the recent consolidation trend in the U.S. telecom industry may act as a major concern for Amdocs.

The Andersons, Inc. (ANDE) declared that its unit, The Andersons Rail Group, has completed the construction of a 27,300 square-foot railcar paint facility in Maumee, Ohio. The new facility will provide a more efficient and environmentally friendly way to clean and paint railcars.

Anderson’s rail operations range from the leasing, marketing and fleet management of railcars and locomotives to railcar repair and metal fabrication. The new Maumee railcar facility will help ease the existing scarcity of this kind of services.

The facility also includes the construction of 1,700 feet of new rail track that will allow the railcars to move through the building. This will also assist Andersons to fulfill the expected growth in demand for quality railcar painting, which ultimately leads to the improvement of customer services.

Maumee, Ohio-based Andersons, which belongs to the agricultural and farm products industry along with Monsanto Co. (MON), Archer Daniels Midland Co (ADM) and Bunge Ltd (BG), reported first-quarter 2013 earnings of 67 cents per share, down 32% from 98 cents per share earned in the year-ago quarter. The results missed the Zacks Consensus Estimate of 86 cents.

Anderson’s Rail Group, on the other hand, registered record first quarter results with revenues spiking 28% to $46 million in the quarter and operating income increasing nearly two-fold to $14.6 million. The group's revenues and income benefited from higher lease rates and increased income from car financings.

The Rail Group witnessed a solid run in 2012 and the momentum is expected to continue in 2013 as well. However, the 2012 drought remains a headwind, Andersons expects the Rail Group to continue to perform well based on its proficiently managed railcar portfolio.

Andersons is a diversified company rooted in agriculture. The company conducts its businesses across North America in the grain, ethanol, and plant nutrient sectors, railcar leasing, turf and cob products, and consumer retailing.

Andersons currently retains a short-term Zacks Rank #3 (Hold).

On May 13, we maintained our Neutral recommendation on Meritor Inc. (MTOR), based on its expansion of global manufacturing footprint by outsourcing to low-cost countries. These outsourcing efforts allow the company to adjust its production levels.

However, we are concerned about the high customer concentration, recent turmoil in the global economy and the year-over-year decline in the company’s profits in the second quarter of fiscal 2013.

Why Maintained?

On Apr 30, Meritor Inc. reported a significant fall in the adjusted income to $6.0 million or 6 cents per share in the second quarter of fiscal 2013 compared with $32.0 million or 33 cents in the year-ago quarter. However, earnings per share surpassed the Zacks Consensus Estimate by 5 cents.

Revenues went down 21.7% to $908.0 million, missing the Zacks Consensus Estimate of $934.0 million. The decline in revenues was due to lower sales volumes in global markets, excluding South America.

Following the release of the second-quarter results, the Zacks Consensus Estimate for fiscal 2013 increased 19.2% to 31 cents per share, but the same for fiscal 2014 dropped 2.9% to 66 cents. Currently, shares of Meritor maintain a Zacks Rank #3 (Hold).

Meritor will benefit from its focus on OEMs based in Asia and South America. The company plans to extend its footprint in the low-cost countries with new plants, especially in China and India.

The company also plans to develop several significant business projects in South America. In addition to this, Meritor aims to boost revenues and earnings by focusing on improving its research, development, engineering and product design capabilities.

However, Meritor faces challenges from its high customer concentration. About 71% of its revenues are generated from the top ten customers, with AB Volvo, Navistar International (NAV) and Daimler AG contributing about 22%, 15% and 11%, respectively.

Other Stocks to Look For

A few stocks that are performing well in the broader industry include Visteon Corp. (VC) and Tower International, Inc. (TOWR). Both the companies carry a Zacks Rank #1 (Strong Buy).

Recently, KBR Inc. (KBR) received a contract from the London Mayor’s Office for Policing and Crime to provide facilities management integrator services to the Metropolitan Police Service. The financial details of the contract were not disclosed.  

The Metropolitan Police Service is the biggest police force of Britain and covers an area of 620 square miles and a population of 7.2 million.     

KBR was awarded the contract after a competitive bidding process and the scope of the contract includes procurement, managing and auditing the facilities management supply chain for the Metropolitan Police Service.   

The contract will be included in KBR’s Services segment. The Services business group primarily delivers full-scope construction, construction management, fabrication, operations/maintenance, commissioning/startup and turnaround expertise. Services revenue increased by $43 million in 2012 as compared to 2011.

This increase was primarily driven by increases of $167 million in the company’s Canada product line and $121 million in the U.S. Construction product line due to several new awards and increased activity on new projects.

In addition, KBR will also design and manage a building management system in order to cut overall maintenance costs for the Metropolitan Police. Further, KBR plans to set up and manage a facilities management call centre.

KBR has more than two decades of experience of delivering effective and efficient services to the U.K. public sector. The company has received about 350 major contracts across 29 central and local government departments.

KBR currently carries a Zacks Rank #3 (Hold). Other stocks operating in a similar industry and worth a look are Chicago Bridge & Iron (CBI), Orion Marine Group Inc. (ORN) and Honeywell International Inc. (HON). All the three stocks carry a Zacks Rank #2 (Buy). 

According to a recent report by Navigant Research, the research arm of Navigant Consulting Inc. (NCI), annual revenue from microgrids used for military bases, both stationary and forward operating bases (FOB’s), is set to aggregate $377.8 million by 2018. 

Microgrids are a group of loads interconnected with each other and act as a single controllable entity. Microgrid helps in managing energy demand-supply and reduces the amount of fossil fuel required to generate electricity. It is also useful in integrating renewable energy resources for military installations and facilitates military bases to continue operations, regardless of the load on the larger utility grid.

Microgrids have an important application for the U.S. Department of Defense (DOD) within the microgrid sectors: stationary bases, forward operating bases, and mobile systems. According to the research report, DOD’s extensive usage of almost all forms of fossil fuels will increase its demand for microgrid technology, which in turn will help its ability to save power.

The report also suggests that microgrids are increasingly gaining in popularity and are currently being deployed by around two dozen military facilities in the U.S.

Navigant offers specialized advices to Disputes and Investigations, Economics, Financial Advisory and Management Consulting for a wide range of sectors including Construction, Energy, Financial Services and Healthcare.

Navigant currently carries Zacks Rank #2 (Buy). Some other stocks within the consulting industry worth mentioning are Information Services Group, Inc. (III), carrying a  Zacks Rank #1 (Strong Buy), and Exponent Inc. (EXPO) and Huron Consulting Group Inc. (HURN), each carrying a Zacks Rank #2 (Buy).