Quanex Building Down to Strong Sell - Analyst Blog

On April 5, Zacks Investment Research downgraded Quanex Building Products Corporation NX, the provider of engineered and aluminum sheet products, to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Quanex Building has witnessed sharp downward estimate revisions after reporting a loss of 14 cents per share for the first quarter of 2014 on March 6. The loss was wider than the Zacks Consensus Estimate of a loss per share of 8 cents.

For full-year 2014, the company expects revenues in the Engineered Products Group (EPG) segment to grow 5%–6% from 2013. However, earnings before interest, taxes, depreciation and amortization (EBITDA) margins for the segment will be similar to the 2013 level.

Last week, the company announced completion of the sale of Nichols Aluminum, LLC to Aleris for $110 million. Nichols Group will be moved into discontinued operations in the second quarter in 2014. Proceeds from the sale will be used to enhance the EPG business.

The EPG segment accounted for 58% of total sales in full-year of fiscal 2013 (ended Oct 31, 2013) including North American Fenestration sales of 80%–85%. Notably, less than 20% of EPG's sales were derived from abroad. The company will now have to concentrate on acquisitions or develop more entry price point products to gain further share in the rapidly rebounding new construction market.

While Quanex Building seems favorably poised for 2014, future growth expectations will remain lower than that of the market until the residential remodeling and replacement activity (R&R) sector recovers. The company will continue to witness increased prices, particularly on vinyl, which will affect its margin.

Following Quanex Building's first-quarter earnings announcement, the Zacks Consensus Estimate declined 31% to 27 cents per share for 2014 and 16% to 58 cents per share for 2015.

Other Stocks to Consider

Some better-ranked stocks in the same industry include Gibraltar Industries, Inc. ROCK, MasTec, Inc. MTZ and United Rentals, Inc. URI. While Gibraltar Industries and MasTec sport a Zacks Rank #1 (Strong Buy), United Rentals has a Zacks Rank #2 (Buy).