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Apogee (APOG) Appreciates 34% YTD: What's Driving the Rally?

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Shares of Apogee Enterprises, Inc. (APOG - Free Report) have rallied 34% year to date, aided by its better-than-expected second-quarter fiscal 2020 earnings,  upbeat guidance and record backlog in the Architectural Services segment.  The stock is also gaining from solid bidding and order activities and continued upbeat outlook for the North America commercial construction market.

Apogee, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $1 billion. The company has an expected long-term earnings per share growth rate of 10%.

Notably, the stock has rallied 34% year to date, against the industry’s decline of 26%.

Let’s delve deeper and analyze the factors behind the company’s impressive price performance and find out if there is room for further appreciation:

Better-than-expected Results: Apogee’s adjusted earnings per share of 58 cents and 72 cents in first-quarter and second-quarter fiscal 2020, respectively, surpassed the Zacks Consensus Estimate. Notably, the company has an average positive earnings surprise of 6.39% over the trailing four quarters.

Further, the Architectural Services segment reported several order wins in second-quarter fiscal 2020. It ended the quarter with a record backlog of $502 million.

Upbeat Guidance: Apogee expects revenue growth between 1% and 3% in fiscal 2020 with improvement across all segments, barring Architectural Services. The company’s anticipates operating margins at 8.2-8.6%, courtesy of improved margins in the Architectural Glass and Architectural Framing Systems segments. Adjusted earnings per share in fiscal 2020 is projected at $3.00-$3.20. Compared with earnings of $2.96 reported in fiscal 2019, the mid-point of the guidance range reflects year-over-year growth of 5%.

Healthy Growth Projections: The Zacks Consensus Estimate for earnings per share is currently pegged at $3.01 for fiscal 2020, indicating growth of 1.7% from the year-ago quarter. For fiscal 2021, the Zacks Consensus Estimate for earnings is pegged at $3.60, suggesting an improvement of 19.6% from the prior-year reported figure.

Return on Assets (ROA): Apogee currently has a ROA of 7.3%, while the industry's ROA is 4.1%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.

Growth Drivers in Place

Apogee’s continues to focus on strategy to diversify revenue streams, explore growth opportunities, and improve the efficiency and productivity of operations. This positions the company well to deliver sustainable growth and profitability. During the second quarter of fiscal 2020, the company completed a facility upgrade that will significantly enhance productivity and margins in the EFCO business.

The company is also striving to improve profitability across the entire Framing Systems segment and has taken steps to increase supply chain integration, reduce procurement costs, and optimize facility footprint. The company also invested in a new facility located in Texas that will be focused on the short lead-time segment of the architectural glass market.

Apogee’s segments have the potential to increase market share, expand into new geographies and markets, and introduce new products. The North American commercial construction markets will grow throughout fiscal 2020. In particular, office and institutional building segments show promise, both of which are core markets for Apogee.

Zacks Rank & Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are Albany International Corporation AIN, AGCO Corporation AGCO and UFP Technologies, Inc. UFPT All of these stocks carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Albany International has an estimated earnings growth rate of 33.85% for 2019. The company’s shares have rallied 47% year to date.

AGCO Corp has a projected earnings growth rate of 11.2% for the current year. The stock has gained 36% so far this year.

UFP Technologies has an expected earnings growth rate of 8.10% for the ongoing year. The stock has appreciated 31% in the year-to-date period.

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