Companies operating in the building materials and industrial products segments took a major hit at the beginning of the COVID-19 pandemic last year due to lockdown measures and a labor shortage. The pandemic resulted in supply chain and financing disruptions also. While the gradual reopening of the economy has so far helped companies in these industries a experience a mild recovery, we believe they are well positioned now for a solid rebound with Biden’s proposed $1.9 trillion stimulus package and continuing supportive monetary policy.
The global market for construction materials is projected to hit $1.5 trillion by 2027, growing at a CAGR of 5.6% from 2020. The residential sector is expected to be the primary driver of this growth.
In addition, the Biden administration would like to spend heavily on physical infrastructure, including roads, bridges, water systems, electricity grids, broadband, and health care. President Biden and Congress are currently negotiating Biden’s infrastructure initiative, which would address critical infrastructure deficiencies and shore up confidence in these markets.
Quanex Building Products Corporation (NX)
NX is a leading manufacturer of components sold to original equipment manufacturers (OEMs) in the building products industry. It operates through three segments: North American Engineered Components, European Engineered Components and North American Cabinet Components. The company designs and produces energy-efficient fenestration products in addition to kitchen and bath cabinet components.
During the three months ended October 31, 2020, NX repurchased 30,201 shares of common stock for approximately $0.5 million at an average price of $17.89 per share. This demonstrated the company’s commitment to value creation in the near and long term.
NX’s business performed well in the fourth quarter, effectively navigating complications and uncertainties created by the pandemic. NX’s net sales have increased 6.2% year-over-year to $255.41 million in the fourth quarter, ended October 31, 2020. Its gross profit has risen 15.7% from its year-ago value to $66.20 million, yielding a gross margin of 25.9%, up 210 basis points year-over-year. Its adjusted EBITDA grew 14.3% from the year-ago value to $39.35 million, while its non-GAAP EPS has improved 59.5% to $0.67 over the same period.
Analysts expect NX’s revenues to grow 6.5% year-on-year to $907.23 million in the fiscal 2021, ending October 31. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The consensus EPS estimate of $1.39 for the current year represents a 12.1% improvement year-on-year. The stock has gained 52.1% over the past six months.
NX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
NX has a B grade for Growth, Value and Quality. Within the A-rated Industrial – Building Materials Industry, it is ranked #2 of 52 stocks.
In total, we rate NX on eight different levels. Beyond what we’ve stated above, we have also given NX grades for Stability, Momentum and Sentiment. Get all NX’s ratings here.
BlueLinx Holdings Inc. (BXC)
BXC is a leading wholesale distributor of building and industrial products in the U.S. The company has a differentiated distribution platform, a value-driven business model and a broad range of products across the building products industry. The Company distributes its comprehensive range of structural and specialty products to dealers, Industrial manufacturers, manufactured housing producers, and home improvement retailers.
In October, BXC reduced its indebtedness under a term loan by $14 million through cash flow from operations and sale leaseback transactions, leaving a $44 million remaining balance. Its deleveraging strategy has helped the company reduce its interest expense and eliminate its total net leverage ratio.
BXC’s net sales have increased 28.3% year-over-year to $871.06 million in the third quarter ended September 26, 2020. Its gross profit has risen 70.2% from the year-ago value to $159.46 million, yielding a gross margin of 18.3%, which is up 450 basis points year-over-year. Its adjusted EBITDA has grown 325.8% from the year-ago value to $80.78 million, while its EPS has improved 777.3% to $5.83 over the same period.
Analysts expect BXC’s revenues to rise 28.6% year-over-year to $788.60 million in the about-to-be-reported quarter, ended December 31, 2020. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. A consensus EPS estimate of $0.66 in the fourth quarter represents a 160.6% rise from the year-ago value. The stock has gained 120.3% over the past six months.
It’s no surprise that BXC has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. BXC has an A grade for Growth, Sentiment and Value, and a B for Quality. In the same industry, it is ranked #1.
Click here to see the additional POWR Ratings for BXC (Stability and Momentum).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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NX shares were trading at $25.76 per share on Wednesday morning, up $1.08 (+4.38%). Year-to-date, NX has gained 16.19%, versus a 3.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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