Valmont’s Long-term Growth Trajectory Remains in Place

On Sep 5, we issued an updated research report on steel pipe and tube company Valmont Industries (VMI). While the company is exposed to some short-term challenges in its utility and irrigation businesses, it is seeing healthy momentum in its Engineered Infrastructure Products segment and should gain from higher infrastructure spending and acquisitions. Its long-term prospects look healthy despite a few near-term headwinds.

Valmont’s profit for second-quarter 2014, reported on Jul 17, slipped year over year on lower sales across most businesses. Earnings matched the Zacks Consensus Estimate while sales missed. The company backed its earnings guidance for 2014.

Valmont, a Zacks Rank #3 (Hold) stock, is witnessing strength in its Engineered Infrastructure Products segment. Within this business, infrastructure build-outs by wireless carriers to support the roll out of 4G network are supporting the results of the company’s wireless communication structures business. Valmont expects acquisition and organic growth to drive sales gains in this division in the second half of 2014.

The acquisition of leading Northern European engineered steel products maker – DS-SM A/S (rechristened Valmont SM A/S) – is supporting growth in the Engineered Infrastructure Products division. The buyout, which has enabled the company to cater to a wide range of industries, is expected to be accretive to its earnings for 2014.

Moreover, Valmont is actively pursuing capacity expansion through new constructions and extension of existing facilities to meet the increasing demand from utility customers in North America. The company also remains committed to return value to its shareholders.

However, results in the company’s North American irrigation business are expected to be hurt by lower commodity prices which are affecting farm income. Lower farm income, in turn, is expected to affect equipment purchases by farmers. Moreover, weakness in the Australian mining industry in affecting results in the company’s coatings business.

Valmont is also faced with certain near-term challenges in its North American utility structures business. It expects challenging market conditions for this business to persist and result in unfavorable profit comparisons for the balance of 2014.

Nevertheless, an anticipated rise in investment in North American transmission grid (with a host of big transmission projects in the pipeline) is expected to support growth in the utility market in the next few years. The global transmission and distribution markets are seen as major long-term growth opportunities in this market.

Other Stocks to Consider

Other companies in the steel and related industries worth considering include United States Steel Corp. (X), Grupo Simec S.A.B. de C.V. (SIM) and TimkenSteel Corporation (TMST) with all retaining a Zacks Rank #1 (Strong Buy).