Building Products – Miscellaneous
United Rentals, Inc.
Janus International Group, Inc.
Quanex Building Products Corporation
The Zacks Building Products – Miscellaneous industry primarily comprises manufacturers, designers, and distributors of home improvement and building products like ceiling systems, doors, and windows as well as flooring and metal products. Some industry players provide solutions to rehabilitate the aging infrastructure, primarily pipelines in wastewater, water, energy, mining and refining industries. The companies also manufacture expansion joints and structural bearings, ventilation products, ground-mounted solar racking and commercial greenhouses as well as mail storage (solutions including mailboxes along with package delivery products). Companies in this industrial cohort also rent out equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners as well as government entities.
3 Trends Shaping the Future of the Building Products Industry
Supply Chain & Inflationary Woes: Inflationary headwinds with respect to transportation costs, material costs and energy costs owing to supply chain disruptions have been a pressing concern. Also, rising labor costs are compressing margins. These are dampening the companies’ operating performance. Rising costs related to steel, asphalt, resin and other input materials are compressing margins. Although the companies have been working to recover higher costs through various price increases, they expect this ongoing volatility in material and transportation costs to persist in the near term as well. Meanwhile, the companies have been witnessing short-term project delays due to material and labor shortages that are impacting upstream building activity. This may result in lower backlog in the near term.
Apart from higher raw material costs, the companies bear expenses related to product launches. If companies are unable to offset these costs through price increases or supply chain initiatives, then it may affect profits.
Also, as the industry players’ business prospects are highly correlated with U.S. housing market conditions and repair and remodeling activity, the current slowdown in the market may prove detrimental.
Operational Excellence, Product Innovation & Acquisitions: The industry participants have been carrying out strong cost-saving initiatives like business consolidation, system implementations, plant/branch closures, improvement in the global supply chain and headcount reductions to boost profitability. Industry participants have also been strategically investing in new products, sales and support services, digitally-enabled solutions as well as advanced manufacturing capabilities to boost revenues. The companies are also following a systematic acquisition strategy to supplement organic growth, and expand access to additional markets as well as products.
U.S. Administration’s Infrastructural Spending: The industry players are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security, and a potential super-cycle in global supply chain investments. The U.S. administration’s endeavor to rebuild the nation’s deteriorating roads and bridges and fund new climate-resilient and broadband initiatives is expected to aid the companies.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Building Products – Miscellaneous industry is a 29-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #185, which places it in the bottom 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since May 2022, the industry’s earnings estimates for 2022 have been revised downward to $3.52 per share from $3.57.
Despite the industry’s gloomy near-term view, we will present a few stocks that one may consider adding to their portfolio. Before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Lags S&P 500 & Sector
The Zacks Building Products – Miscellaneous industry has underperformed the Zacks S&P 500 composite and the broader Zacks Construction sector over the past year.
Over this period, the industry has lost 25.7% compared with the S&P 500’s decline of 11.6% and the broader sector’s 21.9% decrease.
One-Year Price Performance
Industry’s Current Valuation
On the basis of the forward 12-month price to earnings, which is a commonly used multiple for valuing building products’ stocks, the industry is trading at 11.2X versus the S&P 500’s 16.4X and the sector’s 9.8X.
Over the past five years, the industry has traded as high as 19.2X, as low as 7X and at a median of 13.9X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
4 Building Product Stocks to Buy Now
We have selected four stocks from the Zacks universe of building products that currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Quanex Building Products: This Houston, TX-based company provides components for the fenestration industry worldwide. Despite ongoing challenges related to inflation and the supply chain, NX registered higher demand for its products during the second quarter of fiscal 2022, and it has started to see the benefit of its pass-through pricing strategy, which drove revenue growth and improved profitability. The company expects further margin expansion in the second half of fiscal 2022 despite inflationary pressure. It remains focused on generating cash, paying down debt and opportunistically repurchasing stock.
Importantly, Quanex — which has slipped 9.1% in the past year — has seen a 21.8% upward estimate revision for fiscal 2022 earnings over the past 30 days. This Zacks Rank #1 company’s earnings for fiscal 2022 are expected to rise 34.3% from fiscal 2021.
Price and Consensus: NX
Arcosa: This Dallas, TX-based company provides infrastructure-related products and solutions. The company remains focused on its long-term vision to lessen the complexity of Arcosa’s overall portfolio and shift its business mix toward less cyclical, higher-margin growth opportunities that leverage core strengths and drive long-term shareholder value creation. Recently, it has signed a deal to sell its storage tanks business and it aims to invest the proceeds into its key growth businesses. Also, ACA’s inorganic drive to expand its portfolio, improved efficiencies in utility structures business, coupled with solid execution in cyclical businesses, should drive growth.
Arcosa, a Zacks Rank #2 stock, has declined 22% over the past year. That said, ACA has seen an upward estimate revision for 2022 earnings over the past 30 days to $1.83 per share from $1.79.
Price and Consensus: ACA
Janus International Group: Headquartered in Temple, GA, this company manufacturers, supplies turn-key self-storage and commercial and industrial building solutions. Solid backlog level and project pipeline, productivity improvements, and commercial actions, including pricing, are expected to drive growth. The company is expected to benefit from its one-stop-shop offering with a leading market share position in self-storage doors and related design and installation services.
Janus, also a Zacks Rank #2 stock, has declined 36.3% over the past year. That said, JBI has seen an upward estimate revision for 2022 earnings over the past 60 days to 64 cents per share from 54 cents.
Price and Consensus: JBI
United Rentals: Headquartered in Stamford, CT, United Rentals is the largest equipment rental company in the world. This company has been gaining from better fleet productivity on broad-based rental demand in construction and industrial verticals. It remains optimistic for 2022 buoyed by positive customer sentiments and used equipment demand as well as consistent share growth opportunities in certain non-residential verticals, including power, healthcare, distribution, and technology.
URI, a Zacks Rank #2 stock, has dropped 24.4% over the past year. That said, URI has seen an upward estimate revision of 1.4% for 2022 earnings over the past 60 days to $29.79 per share. The company’s earnings for 2022 are expected to increase 35%.
Price and Consensus: URI
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Free: See Our Top Stock and 4 Runners Up >>
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United Rentals, Inc. (URI): Free Stock Analysis Report
Quanex Building Products Corporation (NX): Free Stock Analysis Report
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Janus International Group, Inc. (JBI): Free Stock Analysis Report
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