Gibraltar Downgraded To Strong Sell On Lingering Headwinds

We issued an updated research report on premium steel & iron firm, Gibraltar Industries, Inc. (NYSE:OC) on Sep 4.

Shares of this Zacks Rank #5 (Strong Sell) stock lost 10.5%, as against 1.6% growth recorded by the industry, in three months’ time.

Inside Story

Gibraltar Industries reported weaker-than-expected results in second-quarter 2017. The downside was stemmed by tepid sales in the company’s Industrial and Infrastructure Products segment which declined due to the divestiture of the U.S. bar grating product line and European industrial operations, as well as weaker volume of the Infrastructure business. Also, the Renewable Energy and Conservation segment displayed dismal performance due to the challenging conditions prevailing in the overseas’ energy markets. We believe that persistence of these issues, along with slower-than-anticipated rebounding of the end markets, will continue to dent top-line results in the quarters ahead.

Gibraltar Industries noted that its quarterly margins and profitability declined in the recently reported quarter due to escalating cost of raw materials. Notably, the company estimates that input price inflation would depress earnings by nearly 20 cents per share in the second half of 2017.

Moreover, the company prepares complex designing components for elevated highways and bridges. Construction of these projects involves long gestation periods and hence, is generally funded by the government authorities. As a result, demand in the company’s construction market is highly dependent on government funding. Notably, Gibraltar Industries is exposed to customer concentration risks as it derives a large portion of its sales from only a handful of customers. In addition, the company does not have long-term contracts with its clients. This leads to a possibility of termination of the purchase, causing severe loss in the near future.

Over the last 60 days, the Zacks Consensus Estimate for the stock moved south for both 2017 and 2018, reflecting bearish market sentiments.

Stocks to Consider

Better-ranked stocks in the industry are listed below:

Owens Corning Inc (NYSE:OC) has expected earnings growth rate of 14.8% for the next three to five years and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Patrick Industries, Inc. (NASDAQ:PATK) holds a Zacks Rank #2 (Buy) and has expected earnings growth rate of 10.1% for the next three to five years.

IMI (LON:IMI) Plc IMIAY also carries a Zacks Rank #2 and has expected earnings growth rate of 10.0% for the same time frame.

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