On Nov 15, 2014, Zacks Investment Research downgraded Aegion Corporation (AEGN), the building and construction company, to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
On Oct 29, Aegion posted a 2% year-over-year decline in its third-quarter 2014 adjusted earnings to 43 cents per share impacted by project delays and a higher mix of lower margin activities in the Energy and Mining segment. Earnings, however, came in line with the Zacks Consensus Estimate.
Revenues in the Energy and Mining segment grew 17% year over year in the reported quarter. However, operating income went down 18% to $12.5 million from the year-ago quarter on weak market conditions in several of United Pipeline System’s international markets, delayed work releases in the U.S. and completion of the large Morocco project in 2013 with no comparable contribution during the third quarter of 2014. Additionally, lower gross margins at Corrpro due to higher proportion of construction-related cathodic protection installation activities and slow pace of production on the CRTS/Wasit project also led to the decline.
On Oct 6, 2014, Aegion announced a strategic Realignment and Restructuring Plan. As per the plan, Aegion will realign the reporting segments by combining Commercial and Structural, and Water and Wastewater to form the Infrastructure Solution segment; form the Energy Services segment consisting of Brinderson; and create the Corrosion Protection segment with the remaining Energy and Mining businesses, beginning in the fourth quarter of 2014.
In addition, Aegion will exit Insituform’s contracting operations in France, Switzerland, India, Hong Kong, Malaysia and Singapore and optimize Bayou’s coating facilities in Louisiana, including the shutdown of under-utilized coating plants.
Certainly the cancellation and suspension of the onshore project will impact Aegion’s performance next year. Aegion also estimates cash charges of $15 million to $18 million to be incurred from the fourth quarter of 2014 through the third quarter of 2015 for employee severance, extension of benefits, employment assistance programs and other costs associated with the restructuring.
Aegion also witnessed negative trend in earnings estimate revisions. For the full year, three estimates moved down in the past 30 days and the consensus estimate remained flat at $1.30 a share for the same period.
Further, for the current quarter, Aegion has seen two downward estimate revisions, dragging the consensus estimate down to 40 cents a share from 41 cents over the past 30 days.
Other Stocks to Consider
Some better-ranked stocks in the sector include CaesarStone Sdot-Yam Ltd. (CSTE), AECOM Technology Corporation (ACM) and Trex Co. Inc. (TREX). While CaesarStone and AECOM Technology carry a Zacks Rank #1 (Strong Buy), Trex holds a Zacks Rank #2 (Buy).
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