Apogee Has Less Attractive Return Outlook Relative To Coverage Group; Goldman Downgrades To Sell

Following its less constructive view on companies exposed to cyclically mature end markets, Goldman Sachs turned bearish on Apogee Enterprises Inc APOG.

The Analyst

Analyst Samuel Eisner downgraded Apogee Enterprises from Neutral to Sell and lowered his price target from $44 to $39.

The Thesis

Apogee's key end markets, namely office, multi-family and commercial, have surpassed prior peaks, with organic growth likely to slow from double-digit growth over the past five years to low-single digits through 2018-2020, Eisner said in a note.

Eisner estimates a 60 basis-point expansion in margins in 2019, below the company's initial estimate for "triple digit basis point margin expansion."

Among the multiple risks impacting margins over the near-to-medium term are mix headwinds and competition in Glass, an elevated fixed cost structure, and price/cost pressures in Framing, the analyst said.

Goldman sees a 10 basis-point hit to margin, reducing EBITDA by $1.5 million or 1 percent on average. Apogee's return profile is less attractive than that of Goldman's coverage universe.

"While leverage headroom exists, we believe recent transaction integration issues (EFCO) could limit near team M&A," the analyst said.

Price Action

Apogee Enterprises shares lost about 25.5 percent over the past year. The stock fell 5 percent on Wednesday to $41.24.

Related Links:

A Concrete Play On Trump's Infrastructure Plan With This ETF

Homebuilders And Housing: Spring Selling Season Is Starting Up