On Jan 16, 2014, we downgraded our recommendation on Gibraltar Industries Inc. (ROCK) to Underperform from Neutral. The construction industry is going through a bad phase, reflected in the lower-than-appropriate Architecture Billings Index (ABI) in Nov 2013.
Why the Downgrade?
Gibraltar Industries offers products that range from ventilation and expanded metal to mail storage solutions and rain dispersion products and solutions, and operates primarily in the industrial and buildings market.
A significant amount of the company’s revenues is derived from the construction markets. However, the construction activities have been slowing down recently. In a recent report from the American Institute of Architects (AIA), ABI fell to a level of 49.8 in Nov 2013, compared with 51.6 in Oct 2013. This also compared unfavorably to the fact that an ABI score of 50 or above is taken to be a positive signal. The uncertainty of the Government spend continues to hover around the institutional construction activities.
In this situation, Gibraltar Industries’ over-dependence on a handful of customers worries us. The company’s lack of long-term contracts with its clients, may also lead to a possibility of termination of the purchase leading to a severe loss.
Although strategic acquisitions are a viable means of expanding Gibraltar Industries’ market share, there are some demerits as well. More acquisitions in the international markets exposes the company to various risks including foreign currency translation, various environmental and economical laws as well as challenges from cultural diversity of the countries in which it operates.
The company is expected to release the fourth-quarter 2013 results on Feb 20. The Zacks Consensus Estimate for the same stands at 5 cents, reflecting a year-over-year decline of 10%.
Other Stocks to Consider
Gibraltar Industries has a current market capitalization of $552.6 million. Some stocks like Companhia Siderurgica Nacional (SID), United Rentals, Inc. (URI) and AK Steel Holding Corporation (AKS) are worth considering in the industry. While Companhia Siderurgica sports a Zacks Rank #1 (Strong Buy), United Rentals and AK Steel Holding carries a Zacks Rank #2 (Buy).
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