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 (NASDAQ: 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.

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