Apogee Enterprises Shares Are Living Up To Their Name, DA Davidson Says In Downgrade

The bullish case for Apogee Enterprises Inc (NASDAQ: APOG), a commercial building installer and art framer, has come to an end despite the company's top-and-bottom-line earnings beat Thursday, according to D.A. Davidson. 

The Analyst

D.A. Davidson's Brent Thielman downgraded Apogee Enterprises from Buy to Neutral with a price target lifted from $47 to $52.

The Thesis

Apogee's fiscal first-quarter report showed an earnings beat, better-than-expected top-line growth driven by strong performance in framing and services and improving order trends, Thielman said in the downgrade note.

Several metrics were not as strong, including the glass segment which saw a large — but expected — decline in sales, the analyst said. 

A vital component of the bullish case for Apogee is a sequential build in framing profitability as low-margin contracts from the EFCO acquisition "burn off," Thielman said. That wasn't the case in the quarter, although the operating leverage in the framing segment was "less bad," he said.

The glass business needs to show an inflection in sales growth after an expected 21-percent year-over-year decline in the recent quarter, the analyst said. 

Apogee has "significant work" ahead to lift its EFCO and framing margins to the 12-14-percent levels associated with the legacy business, and this isn't expected until fiscal 2021, Thielman said. 

Apogee's Q1 performance signals that its "house appears to be getting back in order," but the stock's strong upward move Thursday implies a more balanced risk-reward profile, with minimal upside to D.A. Davidson's new $52 price target, the analyst said. 

Price Action

Apogee shares were trading down 1.27 percent Friday afternoon at $48.05. 

Related Links:

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

Benzinga's Top Upgrades, Downgrades For June 29, 2018