Bear of the Day: Quanex Building Products (NX) - Bear of the Day
March 28 2013 - 2:00AM
Zacks
Earnings estimates have fallen sharply for
Quanex Building
Products Corporation (NX) following disappointing first quarter
results on March 7. It is a Zacks Rank #5 (Strong Sell) stock.
Although shares have sold off since the Q1 report,
the stock still doesn't look cheap at 34x forward earnings.
Investors may want to hold off on this stock until earnings
momentum improves.
Quanex Building Products manufactures engineered
materials, components and systems primarily for window and door
original equipment manufacturers (OEMs). It reports is operations
in two segments:
- Engineered Products, which makes window and door components and
other residential building products for OEMs, that primarily serve
the residential construction and remodeling markets.
- Aluminum Sheet Products, which are used in exterior housing
trim, fascias, roof edgings, soffits, downspouts and gutters.
Q1 Earnings Miss
Quanex delivered disappointing results for the
first quarter of its fiscal 2013 on March 7. The company reported
an adjusted loss of 17 cents per share, which was below the Zacks
Consensus Estimate calling for a loss of 6 cents. It was also the
company's third straight earnings miss.
Net sales increased 15% to $185.7 million, driven
by 7% growth in Engineered Products and 29% growth in Aluminum
Sheet Products. Operating profits in the Engineered Products
segment improved to $2.8 million, but this wasn't enough to offset
a $4.2 million operating loss in the Aluminum Sheet Products
division.
Estimates Falling
Despite a rebound in the housing market, management
stated in the Q1 press release that its expects U.S. window
shipments will only improve by approximately 5% this year. This
prompted analysts to revise their estimates significantly lower for
both 2013 and 2014, sending the stock to a Zacks Rank #5 (Strong
Sell).
The Zacks Consensus Estimate for 2013 is now $0.35,
down from $0.58 ninety days ago. The 2014 consensus has fallen from
$1.02 to $0.65 over the same period.
You can see the big decline in earnings estimates
over the last several months in the company's 'Price &
Consensus' chart:
Premium Valuation
Shares of NX are down more than 20% since the Q1
earnings release, but shares still a look a bit pricey here. The
stock currently trades at 34x 12-month forward earnings, which is a
significant premium to its 10-year historical median of 14x and the
industry median of 20x.
Quanex Building Products also carries a long-term
'Underperform' Zacks Recommendation.
The Bottom Line
With declining consensus estimates and premium
valuation, investors may want to avoid Quanex Building Products
until its earnings momentum turns around. There are other stocks
within the Building & Construction - Miscellaneous industry,
however, that investors might want to consider based on their
positive earnings momentum. Masco (MAS) and Trex
Company (TREX), for instance, both carry a Zacks Rank of 2
(Buy).
Todd Bunton is the Growth & Income Stock
Strategist for Zacks Investment Research and Editor of the Income
Plus Investor service.
MASCO (MAS): Free Stock Analysis Report
QUANEX BLDG PRD (NX): Free Stock Analysis Report
TREX COMPANY (TREX): Free Stock Analysis Report
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