Shares of Apogee Enterprises, Inc. (APOG) reached a new 52-week high of $45.16 on Nov 11 and eventually closed trade at $44.94. The stock price appreciation continues to be fueled by Apogee’s robust backlog and strength in architectural markets that has set the momentum for improved results in 2015.
Apogee has delivered a solid one-year return of about 36.2% and year-to-date return of 26.7%, outperforming the S&P 500. Average volume of shares traded over the last three months is approximately 225K.
This Minneapolis-based leader in technologies for design and development of value-added glass products, services and systems has a market cap of $1.29 billion and long-term estimated earnings per share growth rate of 10%.
Strengths of Apogee
Shares of Apogee have started gaining since the company reported second-quarter fiscal 2015 results on Sep 16. Apogee’s earnings per share in the quarter improved 67% year over year to 35 cents aided by a strong architectural market. Earnings also benefitted from an IRS 48C energy-efficiency investment tax credit, with startup and commercial production of coatings on the new architectural glass coater.
Backlog increased across the board and was at the highest level in the last 6 years at $480 million. Approximately 59% of the backlog or $285 million, is expected to be delivered in fiscal 2015 and the balance 41% or around $195 million in fiscal 2016 and beyond.
Apogee’s architectural businesses are gaining share as revenues for all of them increased 34%. Organic growth at 25% was well above the expected 10% market growth this year. Moreover, based on the robust bidding activity, the company guided revenue growth of 20% (up from the previous 15% to 20% range) and earnings per share in the range of $1.62 to $1.72, for fiscal 2015.
Apogee has reopened its Architectural Glass facility in Utah. The facility, which has been closed since Apr 2013, will resume operations by Jan 2015. This will help the company to meet the growing demand for Architectural Glass. Apogee will also expand its Architectural Finishing facility in Wausau, WI by the second half of fiscal 2016. This will add more than 50% capacity to a critical growth operation.
The Viracon architectural glass fabrication business, in its Architectural Glass segment, continues to benefit from the U.S. tall-building sector, which is at its peak since 2007. The segment has also been gaining from improved operating leverage and pricing.
In the Architectural Framing Systems segment, the U.S. storefront business will benefit from price increases and will continue to be a profit driver for Apogee moving forward. Despite delivering a decline in revenues and profits in the second quarter, demand for the Large-Scale Optical segment is expected to pick up in the third quarter for holiday picture framing glass and acrylic requirements.
Apogee expects to outperform its commercial construction markets. The Architectural Billing Index remains above 50, signaling robust conditions ahead for the construction industry. Despite the weak start in Canada, commercial construction markets are now expected to grow for the rest of the year. Moreover, Apogee’s Canada backlog is now at a historical high.
Given the growth prospects, earnings estimates for Apogee also have been on the rise in the last 60 days. The current Zacks Estimate for fiscal 2015 represents 57.9% year-over-year growth and for fiscal 2016 it reflects a 43.3% year-over-year climb.
Other Stocks to Consider
Apogee currently sports a Zacks Rank #2 (Buy). Some other stocks worth considering in the same sector include MeadWestvaco Corp. (MWV), Mercer International Inc. (MERC) and Crown Holdings Inc. (CCK). While MeadWestvaco and Mercer International sport a Zacks Rank #1 (Strong Buy), Crown Holdings carries the same rank as Apogee.
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