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Valmont (VMI) Poised on Strategic Actions Amid Challenges

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On Sep 19, we issued an updated research report on steel pipe and tube company Valmont Industries (VMI - Free Report) .

While the prevailing external environment remains challenging for Valmont, the company should benefit from its restructuring actions, cost management and a focus on operational improvements. The restructuring actions, which the company executed last year, are expected to improve its overall cost structure, thereby supporting its earnings in 2016.

Valmont should also gain from acquisitions and its efforts to boost its market position through investments towards developing its product line. The acquisition of leading Northern European engineered steel products maker – DS-SM A/S (rechristened Valmont SM A/S) – has enabled Valmont to cater to a wide range of industries.

Moreover, the acquisition of a majority stake in South Dakota-based AgSense has broadened Valmont’s portfolio in remote monitoring and control technology for agriculture. The purchase of American Galvanizing Company, a market leader in hot-dip galvanizing in the Northeast U.S., also expanded Valmont Coatings' network to 33 facilities in 6 countries around the world.

However, Valmont faces certain near-term challenges across a number of businesses. The company, in its second-quarter 2016 earnings call, said that it does not expect considerable short-term improvement in its end markets, and anticipates consistent downward pressure in the irrigation market.

The company is seeing continued challenges in its irrigation business. The results in its North American irrigation business are expected to continue to be affected by lower commodity prices which are affecting farm income. Lower farm income, in turn, is expected to impact equipment purchases by farmers.

Moreover, Valmont's utility business remains affected by a difficult pricing environment and unfavorable project mix. A weak mining industry in Australia and depressed global oil and gas markets are also affecting Valmont’s Energy and Mining segment.

Valmont is a Zacks Rank #3 (Hold).

Better-ranked companies in the basic materials space include Ternium S.A. (TX - Free Report) , Angang Steel Company Ltd. and Northwest Pipe Co. (NWPX - Free Report) , all holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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