Shares of Headwaters Incorporated HW attained a 52-week high of $18.38 during intraday trading on Mar 25, finally closing lower at $17.80.
The company has delivered a robust one-year return of about 44.9%, outperforming the S&P 500 return of 13.3%. Headwaters has a market cap of $1.31 billion. Average volume of shares traded over the last 3 months was approximately 712K.
What’s Driving Headwaters?
Shares of Headwaters have been on the rise since the company reported upbeat first-quarter fiscal 2014 (ended Dec 31, 2013) results on Feb 4. Adjusted earnings improved 40% to 7 cents per share from 5 cents in the prior-year quarter. Results were also impressive when compared with the Zacks Consensus Estimate of a loss of 1 cent per share.
Headwaters’ shares further gained support on the announcement of its acquisition of Pennsylvania-based small fly ash marketer on Feb 19. The acquisition will augment the company’s high quality fly ash supply, improving its competitive position in the Northeast, given the lack of the material in the region.
On Mar 6, Headwaters announced highlights from its business strategy at the 13th Annual Analyst and Investor Day held in New York City. The company’s will continue to pursue its objective of growing revenues while maintaining strong margins.
To achieve this, the company will follow a four pronged strategy — expand product sales to core customers; provide a total experience solution; leverage its established sales and marketing coverage; while continuously standardizing improving and leveraging its common infrastructure. Headwaters’ end-use demand for its products remains strong across its businesses.
Headwaters’ top and bottom-line performances reflect its exposure to the growing end markets, increased product demand and strong contribution margins. The adjusted EBITDA guidance for fiscal 2015 of $155 to $165 million reflects annual growth of 12% to 20%. The company expects top-line growth in all major product categories and free cash flow of more than $50 million.
On Mar 24, Headwaters entered into a new seven-year $425 million senior secured term loan B facility (Term Loan) which will mature in Mar 2022. This, combined with the company’s decision to repurchase its 8.75% convertible notes in February will reduce Headwaters’ annual cash interest expense run rate to approximately $31 million, from an annual run rate of approximately $47 million at the end of the Dec 31, 2014.
Headwaters is well positioned to benefit from the strong performance of its light building products and heavy construction materials segments. A significant contribution from margins, together with the growing demand will help the company to generate adequate cash, thereby facilitating debt reduction and enhanced returns to investors.
Other Stocks to Consider
Currently, Headwaters carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Quanex Building Products Corp. NX, Trex Co. Inc. TREX and Aspen Aerogels, Inc. ASPN. While Quanex and Trex sport a Zacks Rank #1 (Strong Buy), Aspen Aerogels carries a Zacks Rank #2 (Buy).
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