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NCI Building Up 22% in 3 Months: What's Driving the Stock?

Zacks Equity Research

Shares of NCI Building Systems, Inc. NCS have been performing well of late. The integrated manufacturer of metal products for the North American non-residential construction industry has seen its shares surge around 22% in the past three months. The company has also outperformed its industry’s growth of 9%.
NCI Building has a market cap of roughly $1.29 billion and average volume of shares traded in the last three months is around 588K. The company has expected long-term earnings per share growth of 10%.

Let’s take a look into the factors that are driving this Zacks Rank #2 (Buy) stock of late.

Driving Factors

NCI Building’s upbeat outlook, focus on growth strategy around insulated metal panels (IMP), along with investments in automation and process innovation are driving its share price.

For the first quarter of fiscal 2018, NCI Building estimates revenues to be in the range of $390-$410 million and adjusted EBITDA to be in the $24-$34 million range. It expects gross margins to improve in fiscal 2018 year due to improvements in cost structure. The company remains confident that fiscal 2018 will be a better year than fiscal 2017. It is poised to gain from success in leveraging IMP (insulated metal panel) product sales to the Components and Building groups. NCI Building projects business to improve over the next 12-18 months. Low-rise non-residential construction starts in fiscal 2018 are anticipated to grow in mid-single digits, with the adjustable markets for legacy businesses projected to be up in the range of 2-4%.

NCI Building is well poised for long-term growth on the back of rising demand for key products and strategic actions. The company is focused on investments in automation and process innovation which will slash operating costs, improve margins, quality and service, as well as enhance long-term operational flexibility. It will also focus on continued improvement in manufacturing, and delivering further cost reductions with the Lean and Six Sigma initiatives across the entire business. The step will reduce excess operational back-office costs and simplify the business. Finally, NCI Building’s focus on growth strategy around IMP and its ability to drive adjacent products across the engines of legacy distribution channels will support performance.

The company’s capital expenditures, which accounted for 1.2% of revenues in fiscal 2017, are expected to be higher in fiscal 2018. The company anticipates growth expenditures to be in the range of $45-$55 million fiscal 2018 and to be funded from operating cash flow. Of this amount, almost half represents growth or productivity investments. The company expects growth and productivity investments to provide minimum returns of 25% or more.

NCI Buildings’ estimates have gone up recently. The earnings estimate for fiscal 2018 has gone up 2% in the past 30 days to $1.07 per share. For fiscal 2019, the earnings estimate has moved up 5% to $1.39 per share.

Other Stocks to Consider

Other top-ranked stocks in the basic materials space include Armstrong World Industries, Inc. AWI, Owens Corning OC and Patrick Industries, Inc. PATK, all carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Armstrong World has a long term estimated earnings growth of 11.7%. Its shares have gained 43% in the past year.

Owens Corning has expected long-term earnings growth of 15.3%. Its shares have rallied 77% in the past year.

Patrick Industries has expected long-term earnings growth of 11.5%. Its shares have gained 35% over the past year.

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