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Retaining Valmont at Outperform

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On Aug 29, we retained our Outperform recommendation on steel pipe and tube company Valmont Industries, Inc. (VMI - Free Report) factoring in strong demand environment across utility and irrigation markets.

Why Kept?

Valmont had an impressive second-quarter 2013 (reported on Jul 17) with profit surging year over year on gain from the sale of an Australian business and a double-digit rise in revenues. Both revenues and adjusted earnings beat Zacks Consensus Estimates. The company saw higher sales across its businesses in the quarter.

Following the release of the second quarter results, the Zacks Consensus Estimate for 2013 for Valmont went up 3.7% to $11.10 per share. The Zacks Consensus Estimate for 2014 has also moved up 2.7% to $11.58.

Valmont, a Zacks Rank #2 (Buy) stock, is witnessing significant strength across the utility and irrigation markets. The company’s strong presence in emerging markets should enable it to deliver incremental earnings in 2013.

In the Irrigation segment, improving North American equipment demand and higher farm income is boosting sales and profitability. Moreover, Valmont’s Coatings segment is benefiting from moderating zinc prices and declining energy costs.

Valmont is also poised to savor incremental opportunity in the utility market, driven by ongoing investment in North American transmission grid. The global transmission and distribution markets are seen as major long-term growth opportunities.

In addition, Valmont is actively pursuing capacity expansion through new constructions and extension of existing facilities to meet the increasing demand from utility customers in North America. We are also encouraged by its commitment to boost shareholder returns through higher dividend payouts.

Other Stocks to Consider

Other companies in the steel industry with favorable Zacks Rank are Nippon Steel & Sumitomo Metal Corporation (NSSMY), Ternium S.A. (TX) and Kobe Steel Ltd. . While Nippon Steel maintains a Zacks Rank #1 (Strong Buy), both Kobe Steel and Ternium hold a Zacks Rank #2 (Buy).

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