Back to top

Image: Bigstock

Apogee Gains From Favorable End Markets, Cost-Control Efforts

Read MoreHide Full Article

On Sep 25, we issued an updated research report on Apogee Enterprises (APOG - Free Report) . The company is poised to gain from its efforts to increase market share, expand into newer geographies and markets, solid bidding and order activities, as well as strong demand in construction activities. Moreover, cost-reduction initiatives will likely boost margin growth significantly.

Apogee reported second-quarter fiscal 2021 adjusted earnings per share of 73 cents compared with the prior-year quarter’s 72 cents. The company generated revenues of $319 million, marking a year-over-year decline of 11% on lower volumes across all of its segments due to the pandemic.

Segments Poised to Grow on Strong Order Backlog

Apogee expects to report solid results in the upcoming quarters with the stabilization in its end markets as well as in the economy after a prolonged period of pandemic-related shutdowns. The company’s Architectural segments are likely to gain from the solid backlog in the long lead-time business.

The Architectural Services segment continues to win new projects and focus on building strong order backlogs. Consequently, the segment’s backlog level reached $665 million in the fiscal second quarter, up 32% from the prior year’s $502 million.  Backed by its robust project pipeline, the company expects backlog growth in third-quarter fiscal 2021 as well. This is likely to drive the top and bottom lines for at least the next two years.

In the Large-Scale Optical segment, customers resumed operations as evident from positive orders and sales trend. In late July, the segment resumed normal operations at two of its primary manufacturing factories, which were shut down in the fiscal first quarter due to the pandemic. The Framing Systems segment will continue to benefit from the optimization of operations, solid execution and cost removal in the fiscal third quarter. Consequently, Apogee expects to report higher top- and bottom-line results in the second-half of the fiscal compared with the first half. Moreover, the company’s segments have the potential to increase its market share, expand into newer geographies and markets, and introduce fresh products.

Favorable End Markets Bode Well

Apogee has exposure in various projects across different sectors, including healthcare, education, and government and multifamily housing, as well as a growing renovation business. Employment growth, improvement in the architectural billing index and pick up in industrial activity instill hope for the company’s business in the near term. Apart from this, various government stimulus measures are providing support for the company’s construction end markets. Consequently, Apogee is witnessing healthy demand from new construction activities.

Cost Reduction to Drive Margins

Apogee continues to focus on strategy to diversify its revenue streams, explore growth opportunities, and improve the efficiency and productivity of operations. This positions the company well to deliver stable growth and profitability. The company has initiated several operational improvements, including cost reductions, integrated product management and pricing strategies, and supply-chain efficiencies. Apogee has made significant progress identifying procurement cost-saving opportunities across the enterprise. Taken together, these cost-reduction and performance improvement actions are expected to deliver around $50 million savings during fiscal 2021, in turn boosting overall operating margins.

Zacks Rank & Other Stocks to Consider

Apogee currently sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks in the Industrial Products sector include Astec Industries, Inc. (ASTE - Free Report) , Berry Global Group, Inc. (BERY - Free Report) and SiteOne Landscape Supply, Inc. (SITE - Free Report) . While Astec sports a Zacks Rank #1, Berry and SiteOne carries a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Astec has an estimated earnings growth rate of 13.5% for 2020. The company’s shares have rallied 68.5% in a year’s time.

Berry has a projected earnings growth rate of 32.3% for fiscal 2020. Shares of the company have appreciated 21.8% over the past year.

SiteOne Landscape has an expected earnings growth rate of 15.4% for the current year. The stock has surged 61.6% in the past year.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.

Click here for the 6 trades >>