Yahoo Finance Advanced Drainage Systems (WMS) Outpaces Industry: Here's How
Advanced Drainage Systems, Inc. WMS or ADS, has been performing pretty well this year. The stock has rallied 14.8% in the year-to-date period compared with the Zacks Building Products - Miscellaneous industry’s 5.6% growth. The Zacks Construction sector and S&P 500 Index gained 5.9% and 14.6% in the same time frame.
The company is benefiting from solid contributions from Allied Products, Infiltrator and the residential end markets. Also, its focus on strategic partnerships and product innovations bodes well.
A Quick Glance at Estimates & Historical Performance
Earnings per share (EPS) estimates for fiscal 2025 have moved up to $7.17 from $6.75 in the past 30 days, reflecting 12.2% year-over-year growth. Revenues are also estimated to grow 5.1% from the previous year.
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The company also has an impressive earnings surprise history, having topped the consensus estimate in the trailing four quarters, with an average of 30.5%. It also has a long-term EPS growth expectation of 17%.
In fourth-quarter fiscal 2024, both EPS and revenues beat their respective Zacks Consensus Estimate and rose on a year-over-year basis. The overall increase in domestic net sales was primarily driven by the continued improvement in the U.S. residential, infrastructure construction and agriculture end markets. Along with the favorable volume growth, better fixed cost absorption and productivity from capital investments are added bliss.
Adding more to the blissfulness, ADS has a Momentum Score of A, which means the company will continue to outperform its industry in the future.
Let's discuss the factors that are supporting these impressive numbers and future outperformance in detail.
Strategic Partnerships & Expansion Moves
ADS has been focusing on strategic partnerships to enhance its offerings. In early 2024, the company unveiled a new collaboration with Rainwater Management Solutions, a provider of rainwater harvesting systems. This partnership aims to deliver leading stormwater treatment systems in both commercial and residential markets. Additionally, Infiltrator launched the ECOPOD-NX, an advanced solution for onsite septic wastewater management.
ADS has one consolidated joint venture, ADS Mexicana, of which 51% is owned by its wholly-owned subsidiary, ADS Worldwide, Inc. Also, it has a joint venture named the South American Joint Venture, of which 50% is owned by ADS’ wholly-owned subsidiary ADS Chile.
In 2022, ADS acquired Cultec, Inc. — a family-owned technology leader in the stormwater and onsite septic wastewater industries. The acquisition of Cultec expanded ADS’ portfolio of innovative water management solutions in the stormwater and onsite septic wastewater industries.
Impressive Fiscal 2025 Guidance
Based on current visibility, the backlog of existing orders and business trends, the company expects net sales in the range of $2.925-$3.025 billion, up 2%-5% year over year. Adjusted EBITDA is expected to be in the range of $940-$980 million, up 2-6% from the previous year. Adjusted EBITDA margin is anticipated to be between 32.1% and 32.4%, flat to up 30 bps from the year-ago period.
For fiscal 2025, ADS projects capital expenditures in the range of $250-$300 million. The company believes that investments in partnerships, material science, product innovation, and manufacturing technology will continue to strengthen its position as the leading water management solutions provider.
Strong Liquidity & Shareholders Move
At the fiscal 2024-end, the company had total liquidity of $1,079 million, including cash of $490.2 million compared with $217.1 million at the fiscal 2023-end. Long-term debt at March-end was $1.26 billion, in line with the year-ago period. As of Mar 31, 2024, the company’s leverage ratio was 0.9x.
Net cash provided by operations was $717.9 million in fiscal 2024 compared with $707.8 million in fiscal 2023. Free cash flow (non-GAAP) was $534.1 million in fiscal 2024, a slight fall from $540.9 million a year ago.
Moreover, ADS returned $251.3 million to shareholders via repurchases and dividends at the end of fiscal 2024. On May 16, the company declared a rise in its dividend payout, underscoring its commitment to sustainable expansion and its capacity to generate lasting value for shareholders.
The board of directors approved a 14% hike in its quarterly cash dividend to 16 cents per share (64 cents annually) from 14 cents (56 cents annually). The new dividend was paid out on Jun 14 to shareholders of record as of May 31, 2024.
Higher ROE
ADS’ trailing 12-month ROE is indicative of growth potential. ROE for the trailing 12 months is 46.9%, much higher than the industry’s 13.8%, reflecting the company’s efficient usage of shareholders’ funds.
Zacks Rank & Other Key Picks
Currently, WMS sports a Zacks Rank #1 (Strong Buy).
Here are some other top-ranked stocks from the Zacks Construction sector:
Owens Corning OC currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
OC delivered a trailing four-quarter earnings surprise of 17.4%, on average. The Zacks Consensus Estimate for OC’s 2024 sales and EPS indicates growth of 16% and 7.4%, respectively, from the prior-year reported levels.
Armstrong World Industries, Inc. AWI presently flaunts a Zacks Rank of 1. AWI delivered a trailing four-quarter earnings surprise of 15.2%, on average.
The Zacks Consensus Estimate for AWI’s 2024 sales and EPS indicates improvements of 9.3% and 10.7%, respectively, from a year ago.
PulteGroup, Inc. PHM currently carries a Zacks Rank of 2 (Buy). It has a trailing four-quarter earnings surprise of 12.5%, on average.
The consensus estimate for PHM’s 2024 sales and EPS implies increases of 7.9% and 10%, respectively, from the prior-year reported levels.
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PulteGroup, Inc. (PHM) : Free Stock Analysis Report
Advanced Drainage Systems, Inc. (WMS) : Free Stock Analysis Report
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