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PGT Innovations (PGTI) Up 18.6% in Past 3 Months: Here's Why

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PGT Innovations, Inc. (PGTI - Free Report) has been rallying of late. The stock has rallied 18.5% in the past three months versus the Zacks Building Products - Miscellaneous industry, the Zacks Construction and S&P 500 index’s 2.7%, 3.8% and 4.5% decline, respectively.

The company has been benefiting from solid demand for Western Windows Systems brand products, accretive acquisitions and pricing actions. Also, intense focus on operational excellence and strong repair and remodeling activities bode well.

Analysts are optimistic about PGT Innovations’ near-term prospects, as is evident from the recent estimate revision trend. Earnings estimates for the third quarter and 2022 have risen in the past two months, suggesting bullish sentiments surrounding the stock. The Zacks Consensus Estimate for earnings has increased more than 8% for both the said periods. This reflects 103.9% and 95.2% year-over-year growth for the third quarter and 2022, respectively.

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The company has surpassed the consensus mark for the trailing four quarters with an average of 19.7%. Also, it is currently enjoying a VGM score of B. These bullish trends justify the Zacks Rank #1 (Strong Buy) stock’s retention in investors’ portfolio. You can see the complete list of today’s Zacks #1 Rank stocks here.

What Makes the Stock a Solid Pick?

Solid Quarterly Performance: PGT Innovations has been performing pretty well. In the first half, net sales were up 37.5% year over year, backed by strong growth in the Southeast and Western segments. Also, it continues to make strategic marketing investments that pay off through customer awareness during the repair and remodeling season.

Its Southeast segment's net sales were up 21.7% (fully organic) and the Western segment's net sales surged 130.9% year over year. Western segment sales growth includes benefits from the acquisition of Anlin and CRi and 40% from existing business.

The Western segment’s production builder business is likely to perform well in the future as demand for conversion to indoor/outdoor living continues to be strong. It is benefitting from the capacity expansion in the Phoenix, AZ, area and the new San Diego showroom in Southern California.

Cost Effective Moves: PGT Innovations has been working on various strategies to combat cost pressure from inflationary pressure and tight labor. It has been witnessing margin expansion on the back of pricing actions taken to offset the impacts of labor and material cost headwinds. Its gross margin improved a whopping 490 basis points improvement in the first half. Also, it maintained a high degree of focus on the supply chain to minimize disruptions, which helped it maintain a high level of operational efficiency and reduce delivery lead times. PGTI has been investing in labor talent, which helped it generate operational efficiencies across the businesses.

In first half, its adjusted earnings increased to a notable $1.09 per share versus 45 cents a year ago. Also, adjusted EBITDA rose 76% and adjusted EBITDA margins expanded 400 bps to 18%.

Upbeat Views: Given the strength in first half results and robust open-orders backlog for the second half, the company raised its 2022 guidance for major metrics. It now expects net sales of $1.450 billion to $1.525 billion versus $1.35 billion to $1.45 billion expected earlier. Adjusted EBITDA is now projected in the range of $250-$265 million compared with the prior projection of $225-$250 million. This leads to year-over-year growth of 25-31% for net sales and 48-56% from adjusted EBITDA.

In 2021, net sales were $1.16 billion and adjusted EBITDA was $169 million. Although sales projection reflects Y/Y decline due to market softness, adjusted EBITDA growth signifies solid operational moves.
 
Acquisitions: PGT Innovations follows a systematic inorganic strategy for expansions and diversifications. It has wrapped up various bolt-on acquisitions that contributed significantly to growth.

Its buyout of Eco Enterprises in 2021 expanded its range of product offerings in the major market of southeast Florida. Also, its Oct 25, 2021 acquisition of Anlin Windows and Doors expands its reach in the west via dealer and distributor network.

In May 2021, it acquired CRi SoCal, Inc., which sells, distributes and installs window and door products, and related design services, for homebuilders in the residential new construction market from its facility in Rancho Santa Margarita, CA.

Superior ROE: Return on equity (ROE) supports growth potential. The company’s ROE of 18.3% compares favorably with the industry’s average of 5.6%, implying that it is efficient in using shareholders’ funds.

Other Key Picks

Other top ranked stocks in the Zacks Construction sector are Arcosa, Inc. (ACA - Free Report) , Gibraltar Industries, Inc. (ROCK - Free Report) and Primoris Services Corporation (PRIM - Free Report) .

Arcosa, currently sporting a Zacks Rank #1, is a manufacturer of infrastructure-related products and services, serving construction, energy and transportation markets.

ACA’s expected earnings growth rate for 2022 is 7.8%. The Zacks Consensus Estimate for current-year earnings has improved 13.7% over the past 30 days.

Gibraltar, currently carrying a Zacks Rank of 2 (Buy), is benefiting from its three-pillar value creation strategy, the strong housing market and solid demand for legacy and TerraSmart businesses.

ROCK’s expected earnings growth rate for 2022 is 18.7%. The Zacks Consensus Estimate for current-year earnings has remained stable over the past 60 days.

Primoris, a Zacks Rank #2 company, is a specialty contractor company operating in the United States and Canada. A robust backlog of more than $4 billion and solid contract awards in the Energy/Renewables and Utilities segments imply incredible momentum in the future despite supply-chain and permitting challenges. Utility-scale solar projects continued to drive progress in the Energy/Renewables segment.

PRIM’s earnings for 2022 are expected to grow 18.4%. The Zacks Consensus Estimate for current-year earnings has improved 4% in the past 30 days.

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