Gibraltar Industries Inc. (ROCK - Free Report) is poised to benefit from the three-pillar value creation strategy, strengthening housing market and strong Renewable Energy & Conservation business.
The company has impressed investors with better-than-expected results in the past several quarters. Its earnings surpassed analysts’ expectations in 10 of the trailing 13 quarters. Net sales also topped the same in seven of the last 11 quarters. Notably, during the first half of 2020, the company’s earnings and sales gained 29.7% and 9.2%, following an increase of 31.9% and 7.1%, respectively, in 2019.
Owing to its strong performance, the company’s shares have gained 24.3% so far this year, outperforming the Zacks Building Products – Miscellaneous industry and the S&P 500 composite’s 9.2% and 6.6% growth, respectively.
Moreover, earnings estimates have risen over the past few weeks, suggesting that sentiments surrounding Gibraltar are growing positive. Over the past 30 days, the Zacks Consensus Estimate for 2020 earnings has been revised 9.6% upward. Also, earnings estimates for 2021 have inched up 5.7% in the same time frame. This signifies bullish analyst sentiments.
Here are a few factors that are driving this Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
What’s Working in Favor?
Three-Pillar Value Creation Strategy: Gibraltar is progressing well operationally as well as financially on the back of its growth strategy. Over the past 12 months, the company has migrated from a Four-Pillar strategy to a Three-Pillar Strategy, with the operating foundation focused on three core tenets: Business Systems, Portfolio Management and Organizational Development.
Business Systems — the first pillar — combines two of its previous strategic pillars, which are operational excellence and product innovation. The company has been focusing on monthly business performance, implementation of key investments, IT operating and digital systems performance as well as new product and services innovation. In the COVID-19 pandemic, it invested more in digital and IT processes and tools like SAP implementations, CRM initiatives, along with a variety of e-commerce platforms.
The second strategic pillar comprises Portfolio Management and Acquisitions. During the second quarter, it sold the Tour24 business, a multifamily service offering in the Residential Products segment, for $2 million. Meanwhile, during the first quarter, it acquired a California-based Delta Separations — a privately held provider of commercial greenhouse solutions in North America that supports the biologically grown organic food market.
Lastly, the third pillar of the strategy is Organizational Development, which primarily focuses on talent development, design and structure of the organization. In a nutshell, these above-mentioned strategies have helped the company to generate strong financial results, make more efficient use of capital and deliver higher shareholder returns.
Steady Housing Market Fundamentals: The U.S. housing market has started gaining strength of late, after the government eased restrictions imposed to contain the COVID-19 pandemic. Historically lower mortgage rates, rising mortgage applications and increasing buyer traffic have been adding to the positives. This will definitely lead to higher demand for Gibraltar’s products.
Strong Renewable/Conservation Markets: Long-term market growth prospects of both Renewable Energy and Conservation businesses remain solid. U.S. solar growth has remained undeterred by the solar panel tariffs. A study by the Solar Energy Industries Association and GTM Research reveals that solar energy has become a cost-effective option for most part of the United States despite the tariffs being levied on imported PV panels.
Meanwhile, on the Conservation front, the segment’s first-quarter net sales increased 17.5% on an organic basis, followed by a 4.2% rise in the second quarter. Apeks, Thermo and Delta acquisitions contributed 22.8% and 25.1% to top-line growth, respectively, in the first and second quarter. Adjusted operating margins expanded 450 and 120 basis points (bps), respectively, for the first and second quarter. The upside was driven by volume leverage, strong execution, continuing productivity improvements, and the mix of products and services.
Superior ROE: Gibraltar’s return on equity (ROE) is indicative of growth potential. Its ROE of 13.9% compares favorably with the industry’s average of 10.8%, implying that it is efficient in using shareholders’ funds.
Meanwhile, Gibraltar — which shares space with Owens Corning (OC - Free Report) , United Rentals, Inc. (URI - Free Report) and Masco Corp. (MAS - Free Report) in the same industry — has been maintaining a strong liquidity position to navigate through this uncertain environment. The company ended the second quarter of 2020 with $521 million liquidity, including $121 million cash and cash equivalents, and an undrawn $400-million revolving credit facility. Its current cash level is sufficient to meet the long-term obligation of $24 million, down $0.6 million sequentially. The debt to total capital at June-end decreased to 3.3% from 3.6% at first quarter-end.
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