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Construction, Cost Savings & IMP Products Drive NCI Building

On Mar 5, we issued an updated research report on NCI Building Systems, Inc. NCS. The company is poised to gain from focus on growth strategy around insulated metal panels (IMP) along with investments in automation and process innovation. Further, efforts to improve cost efficiency through the optimization of manufacturing plant footprint will drive growth.
Upbeat View
NCI Building Systems delivered adjusted earnings of 14 cents per share for first-quarter fiscal 2018 (ended Jan 28, 2018), which surged nearly threefold from 5 cents recorded in the prior-year quarter. Earnings also comfortably beat the Zacks Consensus Estimate of 9 cents, by a wide margin of 56%.
At the end of fiscal first quarter, the total consolidated backlog increased to $569.9 million, up 8.1% year over year. For the fiscal second quarter, the company estimates revenues to be in the range of $430-$450 million and adjusted EBITDA in the band of $29-$39 million. Backed by year-over-year growth in both bookings and backlog and positive economic indicators, the company remains confident that fiscal 2018 will be a better year than fiscal 2017.
Improving Construction Sector to Aid Growth
NCI Building expects low-rise non-residential construction starts in fiscal 2018 to grow in mid-single digits, with the addressable markets for legacy businesses projected to be up in the range of 2-4%. Leading indicators for low-rise, non-residential construction activity indicate continued positive momentum in fiscal 2018. Given that NCI Building is one of North America’s largest integrated manufacturers and marketers of metal products for the non-residential construction industry, it is poised well to gain from expected growth.
Focus on IMP Sales to Fuel Growth
NCI Building’s focus on growth strategy around IMP products is likely to be fruitful in the long run. Given their several physical and cost-effective attributes, such as energy efficiency IMP Products are considered compelling alternatives to competing building materials. Moreover, the adoption of stricter standards and codes by numerous states in the United States will increase the demand for IMP products in construction projects. Buoyed by these factors, growth within the IMP market will continue to outpace the broader metal building sector and the non-residential construction industry as a whole.
Investments to Boost Results
The company is focused on investments in automation and process innovation which will slash operating costs, improve margins, quality and service, as well as enhance operational flexibility. A key element of this initiative is the implementation of an automated frame line for the buildings business. This is expected to start operations by the fiscal third quarter.
It will also focus on continued improvement in manufacturing, and deliver cost reductions with the Lean and Six Sigma initiatives across the entire business. The step will reduce excess operational back-office costs and simplify the business. The company is already ahead of its plans for 2018, having trained over 200 employees, tripled the number of continuous improvement projects being worked compared with 2017.
Driven by these positives, NCI Building has outperformed the industry it belongs to over the past six months. The stock has gained 23% while the industry grew 13%.
Zacks Rank & Other Stocks to Consider
NCI Building currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Some other top-ranked stocks worth considering in the same industry include Armstrong World Industries, Inc. AWI, Installed Building Products, Inc. IBP and Owens Corning OC. All three stocks carry a Zacks Rank #2 (Buy).
Armstrong World has a long-term earnings growth rate of 16.8%. Its shares have gained 27%, over the past six months.
Installed Building Products has a long-term earnings growth rate of 30%. The company’s shares have gained 6% in the last six months.
Owens Corning has a long-term earnings growth rate of 17.8%. The stock has gained 11% in six months’ time.
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