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Apogee Gains From Favorable Markets Amid Coronavirus Woes

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On Jun 29, we issued an updated research report on Apogee Enterprises (APOG - Free Report) . The company is poised to gain from its efforts to increase market share, expand into newer geographies and markets, solid bidding and order activities, as well as strong demand in construction activities. Moreover, cost-reduction initiatives will likely deliver significant margin growth.

Apogee reported first-quarter fiscal 2021 adjusted earnings per share of 15 cents. The bottom-line figure plummeted 74% from the prior-year quarter. The company recorded revenues of $289 million, marking a year-over-year decline of 18.6% on lower volumes across all of its segments due to the coronavirus crisis.

Segments Poised to Grow on Strong Order Backlog

Apogee expects to report solid results in the upcoming quarters with the stabilization in its end markets as well as in the economy after prolonged period of pandemic-related shutdown. The company’s Architectural segments continue to ship products and meet customer requirements. These segments are likely to gain from the strong backlog in the long lead-time business. Moreover, the company forecasts moderate project disruptions in the upcoming quarters across these segments as the economy gradually reopens.

The Architectural Services segment continued to have a solid order flow in first-quarter fiscal 2021. The company won several new projects during the quarter, increasing the segment’s backlog to a record backlog of $685 million, up 42% from the prior-year quarter. Backed by its strong project pipeline, the company expects backlog growth in second-quarter fiscal 2021 as well. This is likely to drive the top and bottom lines for at least the next two years.

In the Large-Scale Optical segment, customers are gradually resuming operations as evident from the recent positive orders and sales trend. The Framing Systems segment will continue to benefit from the optimization of operations, solid execution and cost removal in the fiscal second quarter. These are likely to drive Apogee’s top- and bottom-line performance across its business segments in the fiscal second quarter. Moreover, the company’s segments have the potential to increase its market share, expand into newer geographies and markets, and introduce fresh products.

Solid Construction Demand Bodes Well

Apogee has exposure in various projects across different sectors, including healthcare, education, and government and multifamily housing, as well as a growing renovation business. Following lower numbers in April, improved unemployment report, rebound in retail sales and a pick-up in industrial production in May instill hope for the company’s business. Apogee is witnessing strong demand from new construction activities given its exposure in commercial construction markets. Apart from this, the various government stimulus measures are also providing support for the construction end markets.

Cost-Reduction to Boost Margins

Apogee continues to focus on strategy to diversify its revenue streams, explore growth opportunities, and improve the efficiency and productivity of operations. This positions the company well to deliver stable growth and profitability. The company has initiated several operational improvements, including cost reductions, integrated product management and pricing strategies, and supply-chain efficiencies. Apogee has made significant progress identifying procurement cost-saving opportunities across the enterprise. Taken together, these cost-reduction and performance improvement actions are expected to deliver more than $40 million savings during fiscal 2021.

Hurdles to Counter

Given the coronavirus pandemic-related uncertainties in the end markets and the economy, the company has not issued any guidance for fiscal 2021. In the Architectural business, some of Apogee’s projects were temporarily halted due to government restrictions and production disruptions. Even though the company expects moderate project delays in the fiscal second quarter as the economy resumes operations, resurgence of the pandemic might hurt results. Moreover, the Large-Scale Optical segment is bearing the brunt of the pandemic.

Price Performance

Shares of the company have gained 13.2% in the past three months, outperforming the industry’s growth of 5.9%.



Zacks Rank & Stocks to Consider

Apogee currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Lakeland Industries, Inc. (LAKE - Free Report) , Broadwind Energy, Inc. (BWEN - Free Report) and Axon Enterprise, Inc. (AAXN - Free Report) . While Lakeland Industries sports a Zacks Rank #1 (Strong Buy), Broadwind Energy and Axon carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lakeland Industries has a projected earnings growth rate of 127.8% for fiscal 2020. The company’s shares have appreciated 44.1% in the past three months.

Broadwind Energy has an expected earnings growth rate of 174% for the current year. The stock has gained 6% over the past three months.

Axon has an estimated earnings growth rate of 14.4% for the ongoing year. The company’s shares have rallied 21.3% in the past three months.

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