After two years of muted returns, commercial real estate owners and investors anticipate a substantial shift in the latter half of this year and well into 2025. Apogee Enterprises (APOG), a provider of architectural products and services, is well-positioned to make strides in the resurgent market. The company is looking to the future and is announcing its plans to acquire UW Solutions. Recent financial performance beat top-and-bottom-line estimates, and with a strategic acquisition underway, Apogee looks to continue its growth trajectory.
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The stock trades at a relative discount to industry peers, making it an attractive entry point for investors looking for an interesting angle to the real estate recovery.
Apogee’s Growth via Strategic Acquisition
Apogee Enterprises operates in various sectors, including architectural framing systems, glass, architectural services, and large-scale optical designs. It provides architectural products, including high-performance glass products for windows, curtainwall, storefront, and entrance systems, as well as comprehensive technical services for building glass and curtainwall systems. Sales are conducted through a direct sales force, independent representatives, distributors, glazing subcontractors and general contractors, and retail chains.
The company has announced its intention to acquire UW Solutions in a $240 million cash deal. UW Solutions is a U.S.-based manufacturer known for high-performance coated substrates. It will be integrated into Apogee’s Large-Scale Optical segment, leveraging shared core process technologies and coating expertise. This is part of Apogee’s strategic plan to strengthen its most profitable business segment and diversify its product offerings, particularly in the non-residential construction sector.
The transaction is due to close in the third quarter of Apogee’s Fiscal year 2025, pending all customary closing conditions. The merger is anticipated to contribute approximately $100 million of revenue with an adjusted EBITDA margin of roughly 20% in Fiscal 2026. It is expected to result in $5 million in operational cost synergies by the end of Fiscal 2027.
Apogee’s Recent Financial Results & Outlook
The company recently posted financial results for the second quarter of Fiscal 2025. Despite a decrease in net sales by 3.2% year-over-year to $342.4 million due to lower volumes, Apogee’s gross margin improved by 140 basis points to 28.4% due to improved pricing, better project mix and lower material and insurance costs. This resulted in operating income increasing to $42.0 million, a growth of 3.5% compared to the same quarter the previous year, while adjusted operating income grew by 6.4% to $43.1 million.
The operating margin was 12.3%, with the adjusted margin improving to 12.6%. The company’s non-GAAP earnings per share (EPS) was $1.44, beating estimates by $0.21.
Apogee”s Board of Directors declared a quarterly cash dividend of $0.25 per share, to be paid on November 6, 2024, to shareholders on record as of the close of business on October 22, 2024.
Management has issued guidance for Fiscal 2025, forecasting a full-year net sales drop of 4% to 7%. Despite the revenue decline, the outlook for full-year diluted EPS has been raised to between $4.81 and $5.08. The acquisition of UW Solutions is forecasted to increase net sales by about $30 million but to decrease adjusted diluted EPS by approximately $0.10, mainly due to higher interest and amortization costs related to the acquisition.
What Is the Price Target for APOG Stock?
The stock has been on a steady uptrend, climbing roughly 110% over the past three years. It trades in the upper quartile of its 52-week price range of $41.01 – $86.22 while showing ongoing positive price momentum by trading above its 20-day (70.01) and 50-day (66.93) moving averages. It looks to be trading at a relative discount based on its P/E ratio of 16.3x compared to the average of its peers in the Building Products & Equipment industry, which has a P/E ratio of 21x.
Analysts following the company have mostly been bullish on APOG stock. Based on two analysts’ recent recommendations, Apogee is rated a Moderate Buy. The average price target for APOG stock is $88.00, representing a potential upside of 14.64% from current levels.
Final Analysis on Apogee
Thanks to its diverse portfolio, Apogee is well-positioned to make headway in a rebounding commercial real estate market. The company’s financial performance continues to impress, relying on improved pricing, a favorable project mix, and decreased expenses. Given its relative discount compared to industry peers, the company’s stock presents an opportunity for value-oriented investors.
