Ply Gem: Constructing a Turnaround

04/23/2014 8:00 am EST


George Putnam

Editor, The Turnaround Letter

Our latest featured turnaround stock is a small-cap firm that is a leading producer of homebuilding products, particularly siding and windows, and represents a powerful way to play a rebound in residential construction, suggests George Putnam, editor of The Turnaround Letter.

Ply Gem Holdings (PGEM) was acquired by a private equity firm in 2003, but nearly went bankrupt during the housing downturn. However, it was able to avoid Chapter 11 by doing debt exchanges and having the private equity firm inject more capital.

The company went public in an IPO last May, and the stock traded up from the initial offering price of $21 to $24. However, since its IPO, the stock has been hit by a number of forces that we view as temporary in nature.

The severe winter weather in much of the US has dampened new construction, particularly in the Northeast, which is a major market for Ply Gem.

The company has also taken a number of one-time charges for matters relating to the expected ramp up in sales. While one can never count on the weather, most of these drags on earnings are not likely to recur.

In January, Ply Gem took advantage of the strong bond markets to refinance its debt, extend maturities, and reduce interest expense. While the balance sheet is still somewhat leveraged, the company is expected to generate significant cash flows, which can be used to reduce debt.

The company was able to strengthen its market positions during the housing downturn by acquiring other struggling producers. It also improved efficiency by closing or rationalizing eight manufacturing facilities.

Ply Gem’s original private equity sponsor, Caxton-Iseman, remains a significant shareholder. They did not sell any shares in the IPO, which shows their confidence in the business. But if results do not begin to improve soon, Caxton is likely to initiate more changes to enhance shareholder value.

We believe that Ply Gem will rebound sharply as the housing recovery continues, and we recommend buying the stock up to $20.

Subscribe to The Turnaround Letter here…

More from

Toll Brothers: Winner in Luxury

Two Favorites for the Housing Rebound

Home Depot and Lowe's: Do-it-Yourself Gains

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on STOCKS

Keyword Image
Crude March Madness
03/22/2019 10:48 am EST

Energy markets are experiencing their own March Madness, notes Phil Flynn, senior market analyst at ...

Keyword Image
ET: An MLP to Phone Home About
03/22/2019 5:00 am EST

A couple of weeks ago I had an extended exchange with a friend of mine who is an oil man in Oklahoma...