Universal Forest Products Inc. (UFPI - Free Report) has been gaining investors’ confidence, buoyed by improving U.S. construction market scenario, product innovation and acquisitions.
Year to date, the stock has rallied 42.8% compared with the industry’s 19.3% rise. Also, the company has outperformed the S&P 500’s 14% rise in the said period.
Earnings estimates for 2019 and 2020 have been upwardly revised over the past few weeks, suggesting that sentiments on Universal Forest are moving in the right direction. Notably, earnings estimates for 2019 and 2020 have increased 1.8% and 1.3%, respectively, over the past 60 days.
Let’s delve deeper into the factors that bode well for this Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
What’s Working in Favor of the Stock?
Solid Inorganic Drive: Acquisitions have been Universal Forest's preferred mode of solidifying product portfolio and leveraging new business opportunities. In May 2019, its affiliate acquired the operating assets of Wolverine Wood Products, a Grand Rapids, MI-based manufacturer of wood panel components for furniture, store fixtures and case goods. This buyout boosted its capability to produce value-added wood components for customers and expanded market presence.
Notably, during first-quarter 2019, roughly 7% of gross sales growth was attributed to unit sales improvement, of which 4% was contributed by organic sales and 3% by acquisitions. Precisely, businesses acquired by the company since first-quarter 2018 contributed 10% to unit sales growth of the Industrial segment during the quarter.
Product Innovation & Growth Prospects: Universal Forest’s efforts to introduce new products have been contributing to top-line growth over the last few quarters. In the first quarter, total new product sales advanced 8% from a year ago. Recently, it launched UFP-Edge Timeless that features nickel gap smooth shiplap in a variety of colors. The company remains confident of expansion of its portfolio of Cavalry Blue, UFP-Edge and Deckorators brand products, as well as professional installations. Its newly laminated and insulated panel, namely SuperStratum, and ProWood FR fire retardant raise hopes for the company.
Over the long term, Universal Forest expects new product sales to constitute at least 10% of total sales, while growth of earnings before interest, tax, depreciation and amortization is anticipated to exceed unit sales growth.
The company has solid growth prospects, as is evident from the Zacks Consensus Estimate for 2019 earnings of $2.79 per share, which indicates 16.3% year-over-year improvement. Moreover, its 2020 earnings are expected to increase 12.9% from the year-ago reported figure.
Rewarding Shareholders: Universal Forest follows a consistent policy of rewarding its shareholders handsomely. It hiked semi-annual dividend by 20 cents per share in June 2019, reflecting an 11.1% increase from a year ago. During 2018, the company used roughly $25 million for repurchasing common shares at an average price of almost $29 per share.
Superior ROE: Universal Forest’s return on equity (“ROE”) supports its growth potential. The company’s ROE of 13.9% compares favorably with the industry’s average of 11.5%, implying that it is efficient in using its shareholders’ funds.
Other Stocks to Consider
Other top-ranked stocks in the Construction space include Rayonier Inc. (RYN - Free Report) , AECOM (ACM - Free Report) and Quanta Services, Inc. (PWR - Free Report) , each carrying a Zacks Rank #2.
Rayonier has a solid earnings surprise history, having surpassed the consensus mark in three of the trailing four quarters, with the average positive surprise being 74.2%.
AECOM has a solid earnings surprise history, having surpassed the consensus mark in all the trailing four quarters, with the average being 6.2%.
Quanta Services’ earnings for the current year are expected to increase 29.5%.
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