On Dec 16, 2014, we issued an updated research report on premium railroads manufacturing firm LB Foster Co. FSTR. The company offers a variety of non-imitable products and services to the rail, construction, energy and utility markets through its Rail, Products, Construction and Tubular Product segments. However, operating through a wide global network, the company remains exposed to stiff competition within the industry.
Bearish Factors
Lower steel prices, soft performance of rail business and poor union pacific railroad sales have been weighing on LB Foster’s top-line results in recent times. The company also lowered its full-year earnings guidance to a range of $2.15–$2.50 and revenues within $685–$725 million from the previously projected ranges of $3.20–$3.30 and $770–$780 million, respectively. The slash in guidance was triggered by declining demand faced by the company's rail business as well as Piling Products division, certain litigation-related costs associated with handling and defense of the Union Pacific lawsuit, and anticipation of lower returns from the new acquisitions in energy market.
Moreover, LB Foster’s business encounters severe threats of competition. In order to lower risks of market share loss and increase its competency, the company invests heavily in technological innovations. However, such expenses often prove to be futile, if the newly invented technology becomes obsolete in a short span of time. Also, the company depends on a handful of suppliers for its operations. In case there is a disruption in adequate or timely supply of raw materials, the company may incur losses.
A Few Avenues
We anticipate the above-mentioned negatives to continue weighing on this Zacks Rank #5 (Strong Sell) stock’s top- and bottom-line results in the near term. Nevertheless, certain tactical initiatives undertaken by the company might partially offset the impact of such adversities. Sound sales generated from the company’s Construction Products and Tubular & Energy Services segments might pioneer revenue growth in the upcoming quarters.
The company is also making concerted efforts toward improving its margins on the back of greater operational efficiency and strategic cost-saving programs. Moreover, the company’s initiatives to enhance its corporate liquidity through better management of working capital will likely bear fruits in the near future.
Stocks to Consider
LB Foster currently carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the industry include Grupo Simec S.A.B. de C.V. SIM, On Assignment Inc. ASGN and Booz Allen Hamilton Holding Corporation BAH. All three stocks hold a Zacks Rank #2 (Buy).
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