On Jan 6, Zacks Investment Research downgraded Valmont Industries (VMI) to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold).
Why the Downgrade?
While the steel pipe and tube company’s long-term prospects look healthy, it is faced with some near-term challenges in its utility and irrigation businesses. Slowdown in China and the sluggish European economy are affecting its business.
Valmont posted lackluster third-quarter 2014 results in Oct 2014 with profit tumbling year over year on weak results in its Utility Support Structures segment. Both revenues and earnings fell behind the Zacks Consensus Estimate. The company further cut its earnings guidance for 2014 considering lower anticipated results in its irrigation business in the fourth quarter.
Valmont has witnessed downward estimate revisions since the release of its third-quarter results. The Zacks Consensus Estimate for earnings for 2014 has decreased 5.5% to $8.59 per share. Moreover, the Zacks Consensus Estimate for 2015 has declined 9.9% to $9.34 per share.
Valmont faces a number of near-term headwinds. The results in its 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. Delayed harvest and lower commodity pricing are expected to affect earnings in this business in the fourth quarter.
Within the company’s coatings business, a weak Australian economy is affecting the profitability of its galvanizing businesses in that country. A soft Australian mining industry is expected to continue to impact results in the company’s coatings business.
Valmont’s North American utility structures business is also exposed to certain challenges including price competition on smaller projects. Challenging market conditions for this business is expected to persist in the short term.
Stocks to Consider
Companies in the steel and related industries worth considering include Synalloy Corporation (SYNL), Mueller Water Products, Inc. (MWA) and LB Foster Co. (FSTR). While Synalloy holds a Zacks Rank #1 (Strong Buy), both Mueller Water and LB Foster carry a Zacks Rank #2 (Buy).
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