Despite Q4 Beat, KeyBanc Downgrades Gibraltar Industries

Gibraltar Industries Inc ROC reported an adjusted EPS and sales beat before the open Thursday, but released mixed first-quarter guidance, with a 23-to-28-cent adjusted EPS expected versus a 30-cent consensus estimate, and sales of $213-220 million against a $215.4-million estimate. 

The Analyst

KeyBanc Capital Markets' Kenneth Zener downgraded Gibraltar Industries from Overweight to Sector Weight with no assigned price target.

The Thesis

A bullish stance on Gibraltar Industries has been in place since March 2015 and mostly based on management's long-term goals, Zener said in the downgrade note. But now that most of the company's goals have mostly been met, a move to the sidelines is prudent, he said. 

While confidence in Gibraltar Industries' management team "remains high," conversations with investors are mixed, Zener said. Concerns include the appropriate valuation multiple for the stock and earnings consistency from the 2015 acquisition of RBI Solar. For example, solar sales rose 34 percent during the fourth quarter, but EBIT of 13 percent was down 480 basis points due to higher input costs net of pricing actions.

Looking forward to the full year, Gibraltar's 2018 guidance includes expectations of steel cost inflation of 20 to 25 percent, Zener said. This assumption seems realistic, if not conservative, but "complexity remains" ahead in terms of the business fundamentals and EBIT outlook, the analyst said. 

Price Action

Shares of Gibraltar Industries were trading down 3.31 percent Thursday morning. 

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