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Aegion (AEGN) Down 34% Over a Year: What's Hurting the Stock?

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Aegion Corporation (AEGN - Free Report) has failed to gain investors’ confidence despite undertaking several strategic actions to drive more predictable and sustainable long-term earnings growth. The company’s shares have declined 34.8% in a year’s time, underperforming its industry’s decline of 26.4%.



Let’s delve deeper and try to assess what’s taking this Zacks Rank #5 (Strong Sell) company down the hill.

Dismal Performance & Trimmed View: In the third quarter of 2018, Aegion’s earnings and revenues missed the Zacks Consensus Estimate by 4.3% and 1.2%, respectively. Also, the company’s top line declined 0.6% on a year-over-year basis. Its overall performance during the quarter was negatively impacted by unfavorable project mix in North America CIPP operations along with top-line weakness in cathodic protection business.

Consequently, Aegion has lowered its full-year 2018 adjusted EPS growth guidance to 15-20%, which was earlier projected to be at least 30% in the second quarter of 2018. Moreover, the company is now targeting its revenues from Infrastructure Solutions business below 2017 level of $612.2 million.

Rising Labor Costs Hurt Margins: Aegion has been witnessing rising labor, fuel and chemical costs across North America, which are pressurizing margins. Although the company has undertaken several initiatives to reduce costs and expenses, adjusted gross margin in the Energy Services segment contracted 360 basis points (bps) during the quarter. Also, adjusted operating margin contracted 200 bps in the said segment. It is expected to become more challenging for the company to earn profits in the upcoming months.

Estimates Trending Downward: The Zacks Consensus Estimate for 2018 and 2019 earnings has declined 4.8% and 7.3% to $1.20 and $1.39 per share, respectively, over the past 30 days. The downside mainly resulted from dismal earnings surprise history and top-line performance in the past three quarters. Aegion missed the consensus estimate in five of the trailing seven quarters, with the average being a negative of 3.3%.

In the first nine months of 2018, its revenues decreased 2.1% year over year to $999.6 million. Meanwhile, the Zacks Consensus Estimate for fourth-quarter 2018 revenues is pegged at $311 million, reflecting a decline of 7.9% from the prior-year level.

Overvalued Compared to Peers: The company’s stretched valuation is another concern. Its trailing five-year price to earnings (P/E) ratio is 15.7, which is higher than the industry’s 12.9. This implies that the stock is overvalued compared to peers.

Stocks to Consider

Some better-ranked stocks in the Construction sector are Great Lakes Dredge & Dock Corporation (GLDD - Free Report) , Altair Engineering Inc. (ALTR - Free Report) and EMCOR Group, Inc. (EME - Free Report) . While Great Lakes currently sports a Zacks Rank #1 (Strong Buy), Altair Engineering and EMCOR both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Great Lakes, Altair Engineering and EMCOR’s 2018 earnings are expected to increase 111%, 23.1% and 20%, respectively.

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