On Jan 14, 2015, we issued an updated research report on Universal Forest Products Inc. (UFPI). Despite a solid organic and inorganic growth profile, the company’s near-term outlook is marred by uncertain economic conditions in the U.S. and presence of other headwinds.
Universal Forest Products is making concerted efforts to expand its businesses in new and existing markets. In Nov 2014, the company acquired certain assets of Packnet, Ltd. and Bigs Packaging and Lumber, LLC for undisclosed amounts. While the Packnet acquisition enhanced the company’s industrial business in Minnesota, the acquisition of Bigs Packaging and Lumber increased its business opportunities by allowing deeper penetration into Texas markets.
Over the long term, Universal Forest Products will gain from such acquisitions as well as addition of new customers and products to its portfolio. The company aims to generate $3 billion in revenues with operating margins at normal historical levels by 2017. Also, the company’s commitment to reward its shareholders through dividend payments and share buybacks will keep market sentiments strong for the stock.
However, in the near term, Universal Forest Products remains exposed to customer concentration risks, rising costs and expenses, and dependence on housing markets. Recent uncertainties in the economic conditions will also adversely impact the financials.
Universal Forest Products is slated to release fourth-quarter 2014 results on Feb 18, 2015. The Zacks Consensus Estimate for the quarter is currently pegged at 44 cents, while the same stands at $2.85 for 2014 and $3.43 for 2015.
With a market capitalization of $1 billion, Universal Forest Products currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include CaesarStone Sdot-Yam Ltd. (CSTE), Boise Cascade Company (BCC) and Armstrong World Industries, Inc. (AWI). While CaesarStone Sdot-Yam sports a Zacks Rank #1 (Strong Buy), both Boise Cascade and Armstrong World Industries carry a Zacks Rank #2 (Buy).
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