Why Valmont Industries Looks Like a Stock to Avoid

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Oct 21, 2014

Valmont Industries (VMI, Financial) is in a bad state after it posted disappointing results. The company was further hurt by the lower earnings outlook, which led its shares to fall. The company also missed consensus estimates on earnings front, further adding to Valmont’s woes. The company is also expected to face many short term challenges that may continue for some time. Let us have a look how Valmont manages to face these unfavorable situations.

A weak performance

Valmont Industries has lowered its full year 2014 guidance, and it is now expecting earnings to range between $8.70 and $8.90 per share as compared to its previous forecast in the range of $9.35 to $9.65 per share. This again missed analysts’ estimates who were expecting the company to post EPS of $9.45 for the 2014 fiscal year.

Valmont is suffering and things don’t look easy for it in near term. The declining EPS guidance and the suffering top line is an alarm to the company to chop out this situation. The company, however, is focusing on various aspects to improve its profitability. It is implementing measures to alter its structure and is reducing its cost structure in an attempt to get back its lost ground. It is maintaining a positive outlook towards the market mix. In addition, Valmont is seeing positive signs from the regulatory environment and expects that it will encourage utility investments to improve the reliability of the grid.

What the future looks like

In North America, Valmont is expecting to capture a significant piece of the utility on the back of its good engineering expertise and better customer relationship. On the international front, is also seeing slight improvement in the irrigation segment in countries such as Brazil, Pacific region and Middle-East. However, the declining commodity prices can soften its performance in the international markets.

Success seems far for Valmont. Based on the recent farm commodity price trends and harvest expectations in North America, the company is expecting weakness. It is expecting the segment’s operating earnings to be on a decline by 10% as compared to the same period last year. Shifting the focus to Australia, Valmont is further expecting the industrial economy to be soft. This weakness will affect the company’s business.

Its coatings and engineering infrastructure products segment is expected to be hurt due to this. This segment will take time to get over this weakness. Valmont is expecting the positive earnings in this segment to come up in during the second half of 2014.

But the company is focusing on the engineered infrastructure product segment and expects that the acquisitions and organic growth that it is seeing will result in positive sales comparison and improved profitability.

Conclusion

Valmont's fundamentals are also disappointing. It earnings are expected to decline further within five years. Its earnings are moving with a CAGR of 9.55% which is lower than the industry average of 13.75%. However, the stock is cheap with a trailing P/E of 15.65 and its earnings are showing meek improvement in the term with the forward P/E of 12.94. Considering all the facts, it can be seen that the company is showing no signs of gaining market share in the near term. So from the investment perspective the investors should see investment in Valmont Industries from side lines until the company shows any concrete signs of gaining market share soon.