NCI Building Systems Inc. NCS has observed negative earnings estimate revisions for the current quarter and current year. It has also witnessed a price decline in the past six months. The company’s current quarter results are anticipated to bear the impact of Hurricane Harvey as well as lower volumes in the legacy Components segment due to lingering weak markets.
For the current quarter, NCI Building Systems has seen one downward estimate revision compared with no revisions in the opposite direction, dragging the consensus estimate down to 28 cents a share from 32 cents over the past 60 days — a drop of 13%.
For fiscal 2017 and 2018, we have seen two estimates moving down in the past 60 days, compared with no upward revisions. This trend has caused the Zacks Consensus Estimate for fiscal 2017 to trend lower, going from 80 cents a share to current level of 78 cents.
In the past year, the stock has also underperformed the industry it belongs to. Its share price has dipped 2.0%, against the industry’s rise of 20.9%.
Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be the right time to get rid of the security before more losses affect your portfolio.
Let’s delve deeper to find out other reasons why it might not be wise to keep NCI Building Systems stock in your portfolio anymore, at least not in the near term.
Unfavorable Zacks Rank, Score: NCI Building Systems currently carries a Zacks Rank #5 (Strong Sell) and a VGM Score of D. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three scores (Value - B, Growth - A, Momentum - B). Such a score allows you to eliminate the negative aspects of stocks and select winners.
Near-term Headwinds: NCI Building Systems’ results in the fourth quarter will be hampered by potential temporary disruptions at customer job sites due to Hurricane Harvey, which may affect ongoing projects or ability in the short term to accept deliveries. Further, lower volumes in the legacy Components segment due to continued weak market activity remains a concern.
The company expects to fully implement its plans to enhance cost efficiency, along with optimizing combined manufacturing footprint in phases and estimates incurring future additional restructuring charges associated with these plans. These charges will affect profitability in the near term.
While leading indicators continue to point to year-over-year growth for low-rise non-residential starts of 3-6%, the company has witnessed a divergence in growth rates of extremely large low-rise structures over 500,000 square feet versus smaller structures within the 2017 year-to-date numbers. The company’s legacy businesses tend to focus more on these smaller structures less than 500,000 square feet, which are growing at a slightly slower rate. The company expects, based on current backlog activity and leading indicators, low to moderate growth at the lower end of the 3-6% range over the next 12 months for its legacy businesses if this divergence persists.
Expensive Valuation: NCI Building System’ trailing 12-month price earnings (P/E) ratio is 21.84, while the industry's average trailing 12-month P/E ratio is lower at 19.42. This implies that the stock is overvalued.
Lower Margins than Industry: NCI Building System’s net margin for the trailing 12-months is 3.1%, way behind the industry’s 8.2%.
Stocks to Consider
For investors keen on the industry, one may instead consider a better-ranked stocks, Owens Corning OC, United Rentals, Inc. URI and Armstrong World Industries, Inc. AWI.
Owens Corning has a long-term expected earnings growth rate of 15.3% and its share price has soared 65% in the past year. The stock flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
United Rentals, another Zacks Rank #1 stock, has a long-term expected earnings growth rate of 18.5%. Its shares have rallied 59% in the past year.
Armstrong World Industries has a long-term expected earnings growth rate of 11.7%. Its shares have gained 37% in the past year. It carries a Zacks Rank #2 (Buy).
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NCI Building Systems, Inc. (NCS) : Free Stock Analysis Report
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