PGT Innovations, Inc. (PGTI - Free Report) is poised to benefit from solid repair and remodeling sector contribution, acquisition of Western Window Systems and enhanced cost management.
However, its shares have suffered owing to trade tensions, similar to other construction stocks. Investors are vexed about escalating global trade tensions, as the Trump administration uses tariffs to close its trade deficit, particularly with China. This has dampened investors’ sentiments throughout the year. PGT Innovations has not been an exception in this regard. Trade disputes with China have resulted in supply-chain disruptions as well as increased input costs, eating into corporate profits and in turn showing on stock performance. Over the past six months, shares of PGT Innovations have lost 24% compared with a decline of 32.1% of the Zacks Building Products - Miscellaneous industry and 25% of the Construction sector. It shares space with United Rentals (URI - Free Report) , NCI Building Systems, Inc. (NCS - Free Report) and Armstrong World Industries, Inc. (AWI - Free Report) in the Zacks Building Products - Miscellaneous industry.
Nonetheless, analysts are optimistic about PGT Innovations’ near-term growth prospects, as is evident from the recent estimate revision trend. Earnings estimates have risen in the past few weeks, suggesting bullish sentiments surrounding the stock. Moreover, the Zacks Consensus Estimate for 2018 earnings has increased 8.3% and the same for 2019 was up 4% over the past 60 days. This bullish trend justifies the Zacks Rank #2 (Buy) stock’s retention in investors’ portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
What Makes the Stock a Solid Pick?
Stellar Performance & Upbeat View: PGT Innovations delivered strong third-quarter results with net sales of $199 million, reflecting an increase of 57% courtesy of continued growth in the repair and remodel sector. Meanwhile, Western Windows Systems also contributed to the sales. Organically, sales grew 42%, driven by continued strong demand for its flagship WinGuard impact-resistant products. Gross margin expanded 540 basis points (bps) year over year, backed by its ability to leverage fixed costs, generate manufacturing and operating efficiencies, along with implement price increases to offset cost inflation. Adjusted earnings of 38 cents per share increased more than 137% in the quarter. In fact, the company’s net sales grew 34.9% year over year in the first nine months of 2018. Adjusted earnings advanced 128% and gross margin expanded 410 bps.
Given higher product demand and solid execution, the company has increased its financial guidance for 2018. Net sales are now expected to grow 32-34% instead of 13-17% expected earlier. Adjusted EBITDA is expected within $123-$128 million versus $100-$110 million projected earlier. Net earnings are likely to be between $1.13 and $1.19 per share compared with 95 cents to $1.10 expected earlier.
Solid Growth Prospects: PGT Innovations has solid growth prospects, as is evident from the Zacks Consensus Estimate for earnings for the current year of $1.18 per share, which is expected to increase 93.4% year over year. Again, earnings for 2019 are pegged at $1.30 per share, which is expected to grow 10.7% from a year ago.
Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A.
Western Window Systems Acquisition: In August 2018, PGT Innovations acquired Western Window Systems, an Arizona firm that makes glass walls, windows and indoor/outdoor patio door systems. This buyout made PGT Innovations the national leader in the premium window and door space. The addition of Western Window Systems' geographic footprint supports PGT Innovations’ strategic vision to expand outside Florida, with niche products that allow the company to strengthen its margin profile. With the addition of Western Window Systems, PGT Innovations expects to gain a strategic platform in key geographies throughout the western United States, including California, Texas, Arizona, Nevada, Colorado, Oregon, Washington and Hawaii.
VGM Score: PGT Innovations has a VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 make a solid investment choice.
Superior ROE: PGT Innovations’ return on equity (ROE) supports its growth potential. The company’s ROE of 25.7% compares favorably with the industry’s average of 13.2%, implying that it is efficient in using its shareholders’ funds.
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