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Bull of the Day: Gibraltar Industries (ROCK)

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Gibraltar Industries (ROCK - Free Report) is a $1.2 billion manufacturer and distributor of metal building products for the industrial, infrastructure and residential markets.

The stock is part of a fairly strong building and construction sub-industry ranked in the top 40% of all Zacks industries and including Caesar Stone (CSTE - Free Report) , Masco (MAS - Free Report) , and Simpson Manufacturing (SSD - Free Report) .

ROCK is North America’s leading manufacturer of ventilation products, mail storage solutions including mailboxes and package delivery products, bar grating, expansion joints and structural bearings, plus ground mounted solar racking and commercial greenhouses.

The company is divided into three reporting segments: Industrial and Infrastructure Products, Residential Products and Solar Mounting and Commercial Greenhouses.

Pedal to the Metal

Gibraltar has had quite a run this year, up around 50% YTD. I first wrote about the stock as a Bull of the Day when it was a Zacks #1 Rank in early December and trading in the mid-$20s. And I chose ROCK for Bull of the Day again in August after I bought shares looking for the next breakout above $39.

Here's what I said then...

Construction markets are still strong. And how about 3 more earnings beats for the ROCK -- two of them by over 100%! Plus, analysts are still scrambling to raise estimates.

In the past 60 days, the full-year 2016 consensus rose from $1.38 to $1.44 and 2017 profit projections rose from $1.54 to $1.65.

Also worth noting in Q2, Goldman Sachs added 970,000 shares of ROCK to their portfolios.

What's changed since August?

Another earnings beat and raised guidance, that's what. The Q3 beat reported on October 28 was only 10%, but the company raised its full-year 2016 adjusted earnings within the range of $1.57-$1.61 per share from $1.37-$1.47 per share previously stated.

Analysts responded by raising their estimates, thus making ROCK a Zacks #1 Rank again. For the full-year 2016, the EPS consensus jumped from $1.44 to $1.58, representing 45% growth.

And 2017 profit projections have moved up twice in the last month from $1.65 to $1.73 and then again to $1.81 in the last week, signaling 14.3% growth.

The only disappointment in the quarter was that Gibraltar Industries’ net sales were $272.7 million, down 10.6% year over year. The top line also missed the Zacks Consensus Estimate of $276 million. This lower revenue performance was primarily due to the divestiture of business units in Europe.

Segment Details

Residential Products segment generated revenues of $118 million, down 7% year over year. Segmental sales declined due to lower sale of postal products.

Adjusted operating margin was 17.2%, up 270 bps year over year. The improvement was attributable to greater operational efficiency, accomplishment of the centralized mailbox contract and early receivables from the 80/20 simplification plan.

Industrial and Infrastructure Products yielded revenues of $73 million, down 24% year over year. The decline stemmed from the divestiture of the company’s industrial business in Europe, lower volume of orders from energy-related markets, construction postponements for major infrastructure projects and augmented competition in pricing.

The segment’s adjusted operating margin was 7%, down 140 bps year over year. The downside was witnessed due to reduced volumes and weaker customer pricing (as cost of raw materials increased).

The Renewable Energy & Conservation segment’s revenues came in at $82 million in the quarter under review, flat year over year.

Gibraltar Industries exited the third quarter with cash and cash equivalents of $173.1 million, up from $68.9 million at year-end 2015. Long-term debt was $209 million, up 0.05% from $208.9 million recorded 2015-end.

In the quarter under review, Gibraltar Industries generated $101.2 million of cash from operating activities compared with $44.5 million generated in the year-ago comparable period. Capital expenditure was $7.6 million, up from $6.8 million in the year-ago quarter.

Global Metal ROCK-er

Gibraltar operates facilities in the United States, Canada, England and Germany.

In the Industrial and Infrastructure Products segment, Gibraltar is the self-described market leader in the fabrication of metal bar grating that is used in the oil and gas, manufacturing, chemical processing and leisure/sports park markets. The company also claims leadership in engineered bearings and joints used in bridge construction, roads, and airport runways.

It seems that the company's diverse product segments and lines and international markets has shielded it from the downturn in oil & gas industry construction needs.

Gibraltar also has a leading position in the production of expanded and perforated metal which is used in a wide variety of applications within commercial construction, transportation and petrochemical markets.

In the Residential Products segment, Gibraltar serves the ventilation and air management market with a variety of roof, foundation and interior ventilation products, plus rain dispersion and outdoor comfort products. It also provides postal and parcel solutions for single and multi-family residences and large and small commercial centers. These products include single unit mailboxes, centralized mailboxes and electronic package lockers.

Going Green is Nothing New

A Gibraltar subsidiary, Rough Brothers Inc., has designed, manufactured and installed educational and commercial greenhouses, garden centers and conservatories since 1932. Their sole focus is building the custom greenhouses and conservatories that help commercial growers, retail garden centers, research facilities, universities and schools throughout the country.

RBI Solar, a sister company of Rough Brothers, designs, manufactures and installs solar mounting systems for commercial and utility scale solar projects. As a specialist in ground mount, roof mount, landfill and custom designed specialty solar structures, RBI provides best-in-class solar racking solutions and project management capabilities to serve project developers and system integrators.

Historically over 90% of the public conservatories in the United States were built by a firm called Lord & Burnham. To expand and enhance their conservatory design capabilities, in 1988 Rough Brothers acquired Lord & Burnham's drawings, design details and equipment. As the company says, "This is just one more tool that allows Rough Brothers to deliver the precise and pristine detail requirements of conservatory and greenhouse construction, whether for new or historic greenhouse and conservatory restoration."

The ROCK Bottom Line is Green Too

In Oct 11, 2016, Gibraltar Industries closed the acquisition of Nexus Corporation. This transaction would fortify the company’s RBI greenhouse business. This, in turn, will drive its Renewable Energy and Conservation segments’ revenues going ahead.

Gibraltar Industries aims to attain a market leading position in the U.S. commercial greenhouse market on the Nexus Corporation buy.

If you are looking for an investment to play the booming construction markets, this well-diversified small cap with strong double-digit EPS growth projected into next year should be at the top of your list.

Disclosure: I own ROCK shares for the Zacks Tactical Trader portfolio.

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