Apogee: Building Bet

10/23/2017 5:00 am EST

Focus: INDUSTRIALS

Douglas Gerlach

President, ICLUBcentral, Inc.

A drop-off in earnings can be a sign of weakness. But often the weakness is only temporary, and the resultant price decline provides opportunities for investors who can look past the near-term future, says Doug Gerlach, editor of Small Cap Informer.

In our view, Apogee Enterprises (APOG) is priced for investors who can see the potential offered by the company over the next few years instead of the next few months, and so it is one of this issue’s featured stocks.

The company designs and develops glass and metal products for enclosing commercial buildings. These often serve as the “skin” of skyscrapers and other major structures.

While aesthetically attractive, these systems can also reduce energy consumption and protect against hurricanes and windstorms.

Opportunities to retrofit buildings (to take advantage of energy savings and breathe new life into older structures) is also a growth area for the company.

In June 2017, Apogee completed an acquisition of EFCO, an architectural framing company with a track record of growth, a presence in less-cyclical smaller U.S. projects, and particular strength in educational buildings.


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EFCO is expected to be accretive to fiscal year 2018 EBITDA and add more than $200 million in revenues in that year.

Apogee provides full-year fiscal 2018 outlook for revenue growth of 24% to 26%, EPS of $3.05 to $3.25, and adjusted EPS of $3.40 to $3.60.

Analysts are looking for average annual growth of revenues of 19.5% in the next two fiscal years. We project EPS and revenues growth of 14% annually through 2021, though we do expect some choppiness in results along the way.

Returns on equity have also been increasing steadily to a superb 21.0% in 2016. With EPS reaching $5.72 in fiscal 2021, a projected high P/E of 22 would support a high price of $126. On the downside, the low end of Apogee’s fiscal 2018 guidance is $3.40.

Our low P/E ratio of 11.0 is lower than the lowest P/E of the last five years and provides support for a downside price of $37.40. From the recent price of $46, the upside-to-downside ratio is 9.4:1 and a projected annual total return is 23.5%.

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