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Apogee (APOG) Set to Grow on Strong Architectural Markets


On Sep 20, 2016, we issued an updated research report on Apogee Enterprises, Inc. APOG. Following a strong second quarter, Apogee maintains an upbeat view for fiscal 2017. We believe a growing architectural market and focus on operational improvements will be the primary tailwinds.

Notably, Apogee’s second-quarter fiscal 2017 earnings surged 54% while revenues grew 16% year over year. Apogee raised its earnings per share outlook for fiscal 2017 to the range of $2.80–$2.90. The company maintained its outlook for revenue growth of approximately 10% for fiscal 2017 backed by strong momentum in the architectural markets, expansion in new geographies and introduction of new products.

The upbeat outlook reflects improved operational performance in the fiscal first half that is expected to continue throughout the year. The company continues to focus on achieving top-line growth on the back of product launches, expansion in both domestic and international markets along with entry into new architectural markets. The company anticipates growth in mid-single digit for U.S. commercial construction market in fiscal 2017, as market activity, the Architecture Billings Index, office employment and office vacancy rates all show positive momentum.

Apogee also predicts its gross margin to be around 26.5% and operating margin to be approximately 11.3% in fiscal 2017. Focus on productivity improvement, cost control and improvements in volume, mix, project margins and operating leverage will aid margin expansion.

Apogee also increased its projection for capital expenditure to $70 million for fiscal 2016, higher than its previous projection of $60 million as the company continues to invest to increase capabilities, productivity and capacity. Additionally, the company will focus on its merger and acquisition pipeline. The company will, meanwhile, maintain its dividend and continue to evaluate repurchasing stock to mitigate dilution from its compensation program.

The company believes that in the long term, it will grow through new geographies, new products and new markets. Moreover, backlog, bidding activity, and focus on better project selection, productivity and operational improvements, will help it deliver at 12% to 13% operating margin on revenues of $1.2–$1.3 billion by fiscal 2018. With internal market visibility and external metrics moving in the right direction, Apogee envisions sustained U.S. non-residential market growth at least through fiscal 2020.

Naturally, we are optimistic about the prospects of the stock. As a result, this Zacks Rank #2 (Buy) stock has witnessed upward estimate revisions over the last 7 days. The Zacks Consensus Estimate for fiscal 2017 also increased 1% to $2.87 per share.

Stocks that Warrant a Look

Better-ranked stocks worth considering in the broader sector include Berry Plastics Group, Inc. BERY, Deere & Company DE and Energy Recovery, Inc. ERII. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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