Shares of Raven Industries Inc. RAVN hit a 52-week low of $15.77 on Sep 25, before closing a notch higher at $16.06. The company’s performance continues to be impacted by decline in oil prices and fluctuation in exchange rates. Reduced capital expenditure also remains a headwind for Raven.
The company has underperformed the Zacks Consensus Estimate in three of the trailing four quarters with an average negative surprise of 8.46% and has a negative year-to-date return of over 35%.
What Led to the Drop?
Raven witnessed a year-over-year slump of 48% in second-quarter 2015 earnings on lower sales volumes. Sales also declined 28.5% year over year in the reported quarter mainly due to challenging end-market conditions.
Notably, Raven’s performance is riddled with headwinds like declining oil prices in the energy market, where it is facing significant challenges. The company's Engineered Films Division consumes a large amount of plastic resin, the costs of which reflect market prices for natural gas and oil. Hence, the recent decline in oil prices impacted exploration activity and tempered demand for Engineered Films’ pit liners.
Accordingly, volatility in oil and natural gas prices may negatively affect the cost of goods sold by the company, which in turn could adversely affect sales and profitability.
Further, the company remains concerned about reduction in longer-term investments in corporate infrastructure. Raven estimates capital expenditures in the range of $13–$15 million in fiscal 2016 (ended January 31, 2016), but most probably at the lower-end of this range. Over the past three years, Raven has invested in research and development capabilities, and corporate functions to build a more dynamic business model. However, with a lower growth profile, the company is working on cutting costs.
Raven expects end-market conditions for Applied Technology to further deteriorate through the rest of fiscal 2016. Several original equipment manufacturers (OEM) are reducing production levels and lowering their outlook for fiscal 2016. Raven is also worried about recovery in demand which seems unlikely until late fiscal 2016 due to persistently rising input costs and waning grower sentiment.
Challenges from the commodity cycles also remain a matter of concern for Raven. Additionally, recovery in demand being unlikely until late fiscal 2016 due to high corn inventories, persistently rising input costs and waning grower sentiment will hurt growth.
Moreover, foreign exchange volatility, increased competition and changes in trade, monetary and fiscal policies, and laws and regulations will affect Raven’s results.
These bearish factors have triggered a downward tendency in the company’s estimates in the past 60 days. In fact, the Zacks Consensus Estimate for 2016 decreased nearly 31% to 59 cents per share.
Raven carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked stocks in the same sector include ABB Ltd. ABB, Energous Corporation WATT and Ideal Power, Inc. IPWR. All three stocks carry a Zacks Rank #2 (Buy).
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