The Infrastructure Investment and Jobs Act (IIJA) authorized $1.2 trillion for transportation and infrastructure projects to upgrade roads, bridges, clean energy and power, airports, and other critical infrastructure. Companies in industries that provide the necessary services, resources, and finished products required to complete these infrastructure projects stand to benefit. AZZ Inc (NYSE:AZZ), the market leader in hot-dip galvanizing and coil coating solutions for metals, could therefore be a solid option amidst this infrastructure boom.
The stock has climbed over 100% in the past year, a testament to its strong financial performance, yet it still trades at a relative value. Investors seeking moat-like businesses that pay a dividend and have upside potential might want to consider adding it to their portfolios.
Azz Market-Leading Position
AZZ is a prominent leader in hot-dip galvanizing and coil coating solutions, offering services across various industries. The company operates through two main segments: Metal Coatings and Precoat Metals.
The Metal Coatings segment primarily engages in hot dip galvanizing and other metal coating applications, catering to the steel fabrication industry through its numerous facilities dispersed across the United States and Canada. The company estimates this market is roughly $2.3 billion, of which they hold a 28% market share, making them the leading provider in the space.
The recently acquired Precoat Metals segment provides metal coil coating solutions, such as aesthetic coatings for the metal used in data centers, airports, and other crucial infrastructures. Azz represents a 23% share of this $3.7 billion market, again making them the leading provider.
Analysis of Azz’s Recent Financial Results & Outlook
The company recently reported Q4 and FY 2024 financial results. Total sales for the quarter came in at $366.5 million, beating consensus expectations for $351.67 million and showing an 8.9% increase over the same quarter the previous year. Adjusted EPS of $0.93 also beat consensus expectations of $0.70 and were up 210% over the prior year’s results. The Board of Directors also authorized a fourth-quarter cash dividend of $0.17 per share.
For FY2024, the company reported total sales of $1.5 billion, an increase of 16.2% over the previous year, and an adjusted EPS of $4.53, up 34.8% year-over-year. Cash from operations of $244.5 million, up from $91.4 million in the prior year, helped reduce debt by $115.0 million, resulting in year-ending net leverage of 2.9x.
Management has given guidance for FY2025 total sales of $1.525 to $1.625 billion and an adjusted diluted EPS of $4.50 to $5.00.
What is the Price Target for Azz Stock?
The stock has been trending up, climbing close to 20% in the past 90 days. It is currently at the high end of its 52-week price range of $34.59-$84.52. However, it appears to be trading at a relative value, with the P/E of 23.95x, sitting below the Specialty Business Services industry average of 27.23x.
Analysts following the company have been cautiously optimistic about the stock. For instance, B. Riley analyst Lucas Pipes recently raised the price target on the stock from $67 to $85 while maintaining a Buy rating, citing increased production coming online lifting the company’s value.
Azz is rated a Moderate Buy based on recommendations and 12-month price targets issued in the past three months by two Wall Street analysts. The average price target for AZZ stock is $82.50, which represents a 12.64% upside from current levels.
Final Analysis on AZZ Stock
As a market leader in several segments, Azz is well-positioned to participate in the broad industry growth generated by increased infrastructure projects. The stock has risen steadily and shows no signs of slowing. Investors keen on finding income-generating value stocks with upside potential may want to consider it strongly.
