4 Reasons That Make Gibraltar (ROCK) a Solid Investment Pick

Gibraltar Industries Inc. ROCK remains well positioned to reap benefits from the four-pillar value creation strategy. Notably, strength in the Renewable Energy & Conservation segment bodes well for the company’s earnings growth prospects.

Despite higher raw material costs, and lower demand for building and metal products, this leading manufacturer and distributor of building products has been performing pretty well over the last few quarters, given effective price-material cost management.

Shares of the company have outperformed the Zacks Building Products – Miscellaneous industry and S&P 500 in the past three months. The stock has gained 10.6% in the said period compared with the industry and S&P 500 composite’s 3.3% and 2.9% growth, respectively.

This positive trend justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s delve deeper into the factors that make Gibraltar a solid bet at the moment.

Unique Value Creation Strategy: Gibraltar has been performing pretty well over the last few quarters. The company’s solid performance was backed by the four-pillar value creation strategy that comprises operational excellence, product innovation, portfolio management and acquisitions as strategic accelerators. It has completed major part of the strategy and expects to realize benefits from simplification projects in the near term.

Meanwhile, Gibraltar remains committed to acquire companies that have significant long-term value. The company generally seeks to acquire assets that have attractive end markets, with unique value propositions and patented products or technologies. In a nutshell, these initiatives have been helping the company to generate strong financial and operational results. Moreover, it is likely to reap benefits from the same going forward.

Strength in Renewable Energy & Conservation Segment: Gibraltar remains encouraged by long-term market prospects of both Renewable Energy and Conservation businesses.

Per the Solar Energy Industries Association and GTM Research report, solar energy has become a cost-effective option for most part of the United States, despite increased tariffs on imported PV panels. This is evident from the current sales trend of the company’s Renewable Energy segment. In the first half of 2019, the segment’s sales grew almost 11% owing to strong demand for its greenhouse solutions and 4% contribution from SolarBos.

On the Conservation front, the business has been witnessing robust growth on the back of the cannabis market and the momentum is expected to continue in the coming periods as well. The legal cannabis market is expected to grow to approximately $57 billion on a worldwide basis over the next 10 years (per a report by Arcview Market Research).

End-Market Prospects & Upbeat Views: Solid end-market prospects, given strong backlog level, is likely to boost Gibraltar’s performance going forward. The company intends to increase efficiency on the back of innovative product development, strategic acquisitions and the implementation of 80/20 simplification projects.

Backed by the above-mentioned tailwinds, Gibraltar anticipates third-quarter revenues in the range of $288-$298 million (versus $280.1 million reported in the prior-year period). Adjusted earnings are projected within 84-91 cents per share, indicating a significant improvement from 71 cents reported in the year-ago quarter.

The company expects to generate more than $1 billion in total 2019 revenues. Also, it projects adjusted earnings in the range of $2.40-$2.55 per share, pointing to improvement from $2.14 reported in 2018. Adjusted operating income is likely to be between $110 million and $117 million, suggesting growth from the 2018 figure of $101.4 million. Adjusted operating margin is expected in the range of 10.6-11.1% (implying an increase from 10.1% registered in 2018).

The Zacks Consensus Estimate for the company’s earnings for 2019 and 2020 are projected to be up 15.9% and 9.1% year over year, respectively.

Solid VGM Score: Gibraltar has an impressive 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 a VGM Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), make a solid investment choice.

Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A. Also, the stock carries a Value Score of B, which is suitable for investors looking for value investing.

Other Stocks to Consider

Other top-ranked stocks in the same space include Construction Partners, Inc. ROAD, frontdoor, Inc. FTDR and Aegion Corporation AEGN. While Construction Partners and frontdoor sport a Zacks Rank #1, Aegion carries a Zacks Rank #2.

Construction Partners surpassed earnings estimates in three of the trailing four quarters, with the average positive surprise being 9.2%.

Frontdoor and Aegion’s long-term earnings are expected to grow 15.5% and 10%, respectively.

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